KARACHI, June 6: Analysts at the capital markets thought that the overall impact of the federal budget 2005-06 looked positive for most sectors, such as textiles, cement, fertilizer, banks and insurance.
But the Minister had few surprises in his bag. On the positive side, a status quo appeared to have been maintained on the issue of CVT and also the long-standing demand of KSE to exempt insurance companies from capital gains tax had been accepted. But a big blot seemed to be a complete silence on any kind of tax on the flourishing property business.
Mohammad Sohail, director stock broking and research at Jahangir Siddiqui Capital Markets observed that the thrust of the budget was sustainability of the economic growth and controlling rising prices.
“It is a pro-agri, pro-textile budget,” he observed, which was indicated by cut in duties on raw materials used in several industries, such as textiles, auto and fertilizer. He said that an attempt had been made to encourage small investors to enter secondary debt market, by exempting investment up to Rs150,000 made in Term Finance Certificates (TFCs) from withholding tax.
Sohail stated that the expected increase in Public Sector Development Programme (PSDP) to Rs272 billion bode well for a number of sectors and would help economic growth. It was disappointing to see that corporate tax rate on listed companies had not been reduced.
The market generally noted with relief that apart from stating that Rs4 billion would be collected from the stock exchanges under the Capital Value Tax (CVT), the Minister of State for Finance, did not say what would be the rate of CVT. But most analysts thought that if the collection during the current year had scaled to Rs3 billion against the previous budget target of Rs1.6 billion, it seemed that the rate of CVT at 0.01 per cent had been kept intact. “It would be ascertained only when the complete budget documents are available,” said an analyst, but everyone agreed that the increase in any case was not to be the dreaded 10 times, from 0.01 to 0.1 per cent.
Sohail mentioned that some of the demands of the stock exchange had gone unnoticed, such as the reduction in corporate tax rates and the exemption of withholding tax on dividends.
Humaira Zaheer, head of Equities Research at Capital One Equities also thought the budget to be business friendly and industrialization focused. Cut in duties on a number of raw materials would be positive for overall growth and bringing down prices for the common man, she said. The analyst also celebrated the continuation of exemption of capital gains tax, but thought that the levy of 0.1 per cent on withdrawals from bank over Rs25,000 was harsh for small savers.
Many industries would profit since the focus of the budget was on agriculture and textile, the analyst said.
Khalid Iqbal Siddiqui, head of research at Invest Cap said that companies had been encouraged to go into Initial Public Offerings (IPOs). He said that the telecom sector could gain due to the cut in initial charges by a half from Rs1,000 to Rs500. He agreed that it was a little disappointing that the KSE’s demand of reduction in corporate tax rates of listed companies was not accommodated but the tax was maintained at 35 per cent. Tax rates on banking sector had been reduced to 38 per cent, but that was according to the previously agreed schedule.
Other market observers pointed out positives such as 5 per cent cut in customs duties on urea; reduction of duties from 30 to 15 per cent on tractor import; cut in duties by 5 per cent on locally made machinery for BMR. Hotel and airline industries had been accommodated and so also buses in CKD form. Rate of import duty on plant and machinery for textile industries was placed at zero. The market thought that more IPOs could enter the capital market due to the incentive on taxation. Also the budget had tried to facilitate mergers in the corporate sector.