ANALYSTS at stock brokerage firms were burning the mid-night oil on Friday in a race to prepare and convey reports to their clients on their ‘initial impressions’ on the federal budget 2016-17 announced by the finance minister early that evening.

From the Pakistan Stock Exchange (PSX) vantage point, views ranged from ‘neutral’ to ‘positive’. Analysts at brokerage BMA Capital affirmed the consensus view: “The developments in the federal budget were largely anticipated”.

As the focus of the budget centered on revival of the agriculture and textile sectors, market watchers concurred that industries linked to those sector would be the key beneficiaries. The government proposed to reduce sales tax on urea to 5pc to pull back the price to Rs1,400/bag, from current Rs1,780/bag; provide additional subsidy on DAP fertiliser to reduce its price to Rs2,500/bag from Rs2,800/bag. “Fertilisers are likely to gain the most, with an outstanding package announced for the agricultural sector”, opined Syed Atif Zafar, head of research at JS Global.

With a view to spur exports, zero-rating for five key export sectors has been proposed: textiles; leather; carpets; sports good and surgical instruments. Tax credit for balancing, modernisation and replacement has been extended to June 2019.

But if the investors in the stock market were hoping for removal of 5pc tax on issue of bonus shares, that was not to be. Further, Capital Gains Tax (CGT) has been enhanced and so also tax on dividends for non-filers (of income tax returns) to 20pc from 17.5pc. Super tax has been imposed across the board for one more year.

“The budget seems to be ‘positive’ for textiles; ‘neutral to negative’ for autos; ‘neutral to positive’ for oil and gas and ‘negative’ for most other sectors”

“The government did not adhere to its promise made last year of imposing super tax (for banks at 4pc of income and all others 3pc of income) for just one year” lamented a broker-turned industrialist.

A senior official at the PSX declined to comment on the budget saying the Exchange would give its reactions after a board meeting. But Arif Habib, former PSX chairman, expressed his dismay over the budgetary measures for the market saying that the government had brushed aside the well-thought out budget proposals forwarded by the PSX.

He said that the tax credit enlistment at 20pc had not extended to five years as proposed by PSX. “While levy of CGT continues, there is hardly a reason to levy Capital Value Tax (CVT) as well”, he said.

Arif Habib was also sour that proposals regarding REITS were generally ignored. The reduction in corporate tax rate by one per cent to 31pc for FY17 was as per schedule, but the recommendation for a lower tax for listed companies over the unlisted entities so as to encourage more companies to enter the capital market did not find favour with the budget makers.

Mohammad Sohail, CEO at brokerage Topline Securities affirmed: “The budget contains no surprises and no out of box measures. For stock market, the budgetary measures are neither good nor bad as there is no major step either ways, which gives it the form of a neutral budget”.

Raza Jafri, head of research at Intermarket Securities also expressed concern over the enhancement of CGT and tax on dividend. He thought that the budget was negative for the insurance sector since under the revised tax structure, all sources of income will be taxed at a uniform rate, against the previously followed practice of levying different tax rates on various sources of income, which amounted to much lower average tax rate.

Intermarket Securities in its report suggested the budget to be ‘positive’ for textiles; ‘neutral to negative’ for autos; ‘neutral to positive’ for oil and gas and ‘negative’ for most other sectors.

Fawad Khan, director research and business development at KASB Securities reckoned that overall the budget was ‘more of the same’. For banks, he said the budget appeared to be ‘neutral’ while ‘positive’ for cements.

He believed that the high allocation of Rs1.675tr for PSDP was a blessing for the cement sector. He seemed slightly uneasy over the increase in Federal Excise Duty (FED) on cement to Rs1/kg from 5pc of MRP.

Former Chairman All Pakistan Manufacturers’ Association, Aizaz Sheikh told this writer on Friday night that cement manufacturers would take hit of Rs50/bag due to the increase in FED and sales tax. Investors were left wondering if the cement producers would pass it on to the consumers.

Other than that auto policy would be implemented from July 2016 where new entrants would enjoy concessionary duty slabs. Removal of zero rating on packaged milk and imposition of regulatory duty at 10pc (in addition to the custom duty at 20pc) on import of powdered milk was likely to impact the packaged milk producers.

Analysts at BMA Capital calculated that super tax extended for another year would have negative impact of 6pc to 8pc on profitability of commercial banks for FY17.

Published in Dawn, Business & Finance weekly, June 6th, 2016