KARACHI: Investors in stocks were not exactly jumping with joy on the conclusion of the budget speech by the finance minister on Friday evening. Some prudent market participants said that they needed time for the measures announced to sink in.

But from the first hearing the government did seem to have set aside most of the budget proposals presented by the Pakistan Stock Exchange (PSX). The three principal measures included the rationalisation of period of holdings for levy of Capital Gains Tax (CGT); waiver of tax on dividend in the hands of the shareholders and to abolish tax on bonus shares.

The budget, in contrast has, however decreed increase of tax on dividend to 15 per cent from 12.5pc while ignoring the issue of tax on bonus shares.

Arif Habib, former chairman of KSE (now PSX) commented that for the capital market the budget proposals were not entirely negative or positive, but a mixture of both. “While the government had provided certain incentives for the growth of the market, those were also diluted by some other measures that were less than encouraging”.

He elaborated that the reduction in corporate tax rate by 1pc for non-banking companies to 30pc from 31pc, though on course, was nonetheless encouraging. “However, the equalisation of borrowings by the government with the amount of PSDP—Rs1,001bn—appears to give a sense that it would be applied for development and none of it for current expenditure,” he said.

Relating to the all-important CGT, the budget has abolished the concept of holding period slabs. The tax would be levied at flat rate of 15pc, while super tax has been extended at the prevailing 4pc for banks and 3pc for companies. PSX had proposed CGT at 8pc for holding between six to 12 months and 10pc for less than six months.

Some proposals of PSX have been partially accepted. Tax credit to new companies listed on the PSX has been extended to four years from two years, where credit of 20pc is available for the first two years while 10pc credit is made available for the next two years.

PSX had asked for tax credit up-to-five years from the tax year in which company is listed.

Some proposals that were set aside included reduced rate of tax at 20pc on small and medium sized enterprises to pull them up for listings and the rationalisation of taxation regime for brokers. Minimum tax rate on turnover has been increased from 1pc of turnover to 1.25pc.

Muhammad Sohail, CEO Topline Securities said that contrary to expectations, the budget had little to offer to the capital market. At first sight the impact on sectors, he thought would be positive for the fertiliser sector as sales tax on DAP was reduced to Rs100, from Rs400.

There were also some positive implications for the IT/telecom and autos. It looked to be negative for cements and tobacco, neutral to positive for oil marketing companies and neutral for steel and textiles.

Published in Dawn, May 27th, 2017