KARACHI: In the Economic Survey FY2013-14 as well as in his budget speech, the finance minister showered praises on the country’s capital market for the scintillating growth of 45pc since the PML-N government took office.

Yet, brokers and investors drew long faces as the minister’s words failed to reflect in his actions.

“If it wasn’t for the decrease of 1pc in corporate tax rate to 33pc from 34pc, I would have termed the budget disappointing for the market,” said several major market players.

Former KSE chairman Arif Habib, however, thought that the proposals for the capital market were tilted on the positive side. He was unhappy, though, over the way the government dealt with the major market issue — the Capital Gains Tax (CGT).

According to the proposals, the CGT would be reduced to 12.5pc for holding of less than 12 months, but at the same time it is proposed at 10pc for securities holding between 12 and 24 months.

“The levy for holdings up to two years comes as a rude shock,” said Mr Habib.

That went wide of the mark of 10pc CGT for holding for one year suggested by the KSE. Several other participants thought that none of the markets in the region followed such practice of discouraging long-term investment.

The other major change which analysts and brokers believed to be “cruel” was the levy of 5pc on bonus shares based on the book closure price. “It would discourage corporates to issue bonus shares”, Mr Habib asserted.

Mohammad Sohail, CEO at Topline Securities, concurred. He stated that it would pour cold water over the enthusiasm of investing public as well as corporates who remunerate shareholders with bonus issues. He believed that the government would have to reconsider and possibly withdraw the proposal.

Another budget proposal that did not fine favour with the investors was the levy of tax on dividend at 10pc to 15pc, adjustable for those who do not file returns. Meanwhile, the government ignored the compulsory dividend payment proposal of the KSE, which even some major market players thought was a far-fetched idea, anyway.

Most analysts were unable to comment on changes in export refinance scheme and custom duties until budget’s details are available.

Muzammil Aslam, MD Emerging Markets Research, pointed out that the government had not extended the amnesty of non-declaration of source of funds to be invested in stocks. The amnesty applicable from January 2011 is to end on June 30.

However, he thought that the higher allocation for Public Sector Development Projects (PSDP) by 24pc and no new taxes in terms of sales tax and Federal Excise Duty bode well for several sectors on the stock market.

He said the budget provided pro-growth incentives and was particularly positive for the cement and textile sectors. Yet many participants were unsure if the beeline of development projects under medium-term growth strategy — which include network of highways, Karachi-to-Lahore motorway, Daimer Dam Project, housing schemes and a revolution in the Railways — would translate into ground reality.

Incentives to the textile sector for speedy refund; protection of value chain; duty drawbacks and extension of import duty exemption for textile machinery imports, were thought to be aimed at securing the benefits of GSP+ status.

The finance minister talked about privatisation of UBL and ABL before the year was out and secondary offerings of PPL and OGDC in the upcoming fiscal year. He also hinted at auction of two more 3G/4G licences and bragged about the success of Eurobond offer in the international market.

Published in Dawn, June 4th, 2014