Karachi, June 9: “Robbing Peter to pay Paul” is how the government went about performing a balancing act for the stock market. None of those fears materialised regarding levy of heavy taxation on brokerages or to sift speculation from medium to long-term investment in equities, by discouraging the former.
But on the other hand, the budget 2007-08 did not touch the Capital Value Tax (CVT) so that both who thought it would be raised and vice versa were proved wrong. The clamour of differentiation in tax rates for listed and unlisted companies (now uniform at 35 per cent) fell on deaf ears.
An analyst said he couldn’t readily make out if the minister said that maximum limit of investment in IPOs to avail tax credit was enhanced from Rs0.2 to Rs0.3 million. “If that be so, it was a disincentive for smaller new companies to come up for raising capital from the market.”
Cement industry appears to have had a good deal. The increase in PSDP to Rs520 billion up 32 per cent from last year and the promise of construction of dams and housing projects were all seen by a cement producer to be able to absorb the upcoming increase in capacities.
The impact of abolition of excise duty at Rs2,000 per ton on imported bitumen for construction of roads and downward revision of custom duty had still to be calculated. Increase of subsidy on DAP to Rs470 from Rs400 was seen as positive for the fertiliser industry.
“Considering the upcoming elections and rising inflation, the government presented a ‘relief-based’ budget,” says Mohammad Sohail, director equity broking at JS Capital. He said that no major changes were seen for the capital market except for benefits to private equity funds and Real Estate Investment Trusts (REITs).
Income arising on sale of immovable property to REITs has been exempted from tax for three years. The government has shown interest in introducing concept of private equity funds in place of venture capital (green field projects), which was thought to be in line with international trend.
Najam Ali, chairman Mutual Funds Association of Pakistan (Mufap) said that given the available resources, it could be termed as “capital growth-oriented budget.”
But he was averse to the withdrawal of tax exemption to Mutual Funds on CFS interest income, saying that income derived by Funds is a “collective” and not “individual” income. “No where in the world is such income taxable”, said the Mufap chairman.
He also thought that the government should spell out a clear policy on capital gains tax instead of extending exemption for a year at a time.
Market participants visualised as healthy the steps proposed for encouraging ‘Holding companies’ concept as 75 per cent shareholding would now be required if none of the companies is a public listed limited company, but 55 per cent equity stake in case one of group companies is a public listed company.
An industrialist said that the budget documents would have to be scanned to see the true picture but what he learnt was that companies would have to pay advance tax in first year of operations and that one per cent import duty would be levied on all raw materials (except oil and food).
“It would hugely increase cost of production of goods,” he lamented and added that the incentives to Chinese goods producers in tax-free zones to be set up near Lahore would go to hurt the local industries that are already in operation.
Duty rates on vehicles increased around the effective rate of CVT except for up to 800 cc cars and withholding tax at 5 per cent on purchase of locally manufactured cars, were seen as unfavourable for the automobile sector, but on the flip side, the capping for import of old/used cars had been favourably revised.
It will have to be seen how the auto assemblers see it in overall context. But on Saturday evening one major assembler contacted to seek comments, was heard in the background asking the person, who picked up the phone, to shoo the reporter away.
