Capital market experts are happy. Many were seen beaming with joy. Even the grouchiest of them could find few reasons to be unhappy.

A fund manager said he believed the budget was a thing to celebrate. “Refusing to cede to the International Monetary Fund’s (IMF) demands to raise taxes in the stiff economic conditions and the pandemic clouds hanging overhead, even a static budget with no new levies would have been good enough,” he said, adding that the budget-makers had been bold to offer relief where possible.

The long-lingering demand of the Pakistan Stock Exchange (PSX) regarding the reduction in the rate of capital gains tax (CGT) was not altogether set aside by the finance minister perhaps because he is himself a figure of the corporate world. The exchange had asked for the CGT rate of 10pc for a holding period of up to 12 months and no CGT for a holding period of more than 12 months. The budget-makers took the middle way and reduced the CGT to 12.5pc.

Farrukh H Khan, CEO of the PSX, termed the budget “positive and progressive under very difficult circumstances”. He reckoned that the document was growth-focussed, which was the need of the hour, and appreciated the initiatives to reduce harassment of businessmen by tax officials and grow the tax base. “We thank the finance minister and the Federal Board of Revenue (FBR) for accepting many of the PSX proposals,” he said, requesting them to reconsider the tax credit for initial public offerings (IPOs). He said it had no significant revenue impact and was very important for the documentation of the economy and capital formation.

Brokerage houses offered little difference in their observations on the budget. Foundation Securities commented that the budget was positive for the equity market as it decreased CGT rate by 2.5 percentage points along with the abolition of 10pc withholding tax (WHT) on margin financing. “The continuation of construction-related relief measures such as subsidy allocation of Rs30bn for Naya Pakistan Housing Scheme… would bode well for construction-related sectors.”

The brokerage expressed concerns over the abolition of tax credit on PSX listings, which would be negative for growth in the stock market. Moreover, the imposition of a petroleum levy to meet the tax revenue target will be inflationary in nature.

Arif Habib, former chairman of the PSX, believed the budget was business-friendly and pro-growth. The finance minister had tried to cut down the cost of production and lower the cost of doing business by sticking to his stand on the electricity tariff and the reduction of customs duty on raw materials that would lower the cost of production. He mentioned bringing down the CGT rate and the withdrawal of WHT on margin financing as incentives for stock investors.

Mr Habib expressed his concern over two issues that escaped the eye of budget-makers: “Steps and incentives to encourage the documentation of construction and housing industries have been ignored. Secondly, quick refunds of stuck-up sales tax and income tax should have received attention since hundreds of billions of rupees are ploughed back into the industry to fuel industrial growth,” he reckoned.

Global Capital CEO Muhammad Kamran Nasir said the PTI government presented “a very balanced and pro-growth budget amidst too many challenges”. The striking feature, he said, was that the existing taxpayers who carry the major burden of taxes for the national exchequer were not burdened with new taxes.

Mr Nasir appreciated the “abundant incentives” for various sectors across the board in terms of cuts in customs duty/WHT/CGT/turnover tax.

Topline Securities in its comment on the budget said it was “mostly positive for the Pakistan equities” where the key win for the stock participants was the reduction in the CGT rate. The brokerage pointed out that the finance minister had hinted in his speech at the possibility that the rate might be reduced further in coming years. The government has proposed to delete the 10pc WHT on NCCPL margin financing and remove the 0.2pc WHT on members of the stock exchange. The reduction in the turnover tax rate to 1.25pc from 1.5pc and cuts in customs duties and additional customs duties on various sectors were also encouraging for the market.

It pointed out that there were no major developments in the following areas: no change in the corporate tax rate, no change in the tax on dividend income, no change in the tax rate on intercorporate dividends and no change in the sales tax rate of 17pc.

Several analysts said the 2021-22 budget was positive for cement, steel, power, automobiles and fast-moving consumer goods. Cement and steel sectors will benefit from the relief measures offered to the construction sector and the enhanced PSDP allocation. The budget was also positive for banks due to the removal of WHT on banking transactions and withdrawals, which may support deposit growth.

It was slightly negative for fertiliser and exploration and production sectors.

Published in Dawn, The Business and Finance Weekly, June 14th, 2021