KARACHI: The federal budget announcement for fiscal year 2017-18 came rather disappointing for the stock market as finance ministry igonred all its recommendations and instead raised the incidence of tax on cash dividends and capital gains.

An elected director on PSX board said it was quite shocking for them that none of their recommendations were incorported in the federal budget

“Market was performing and foreign interest was imminent after the MSCI upgrade and given the improving economic indicators we were confident the government would provide some incentive,” he added.

Government of Pakistan has announced a fixed regime of capital gains tax (CGT) on stocks trading wherein tax at the rate of 15 percent is imposed regardless of holding period for filers and 20 percent for non-filers.

Moreover, income tax on cash dividends is raised to 15 percent from existing 12.5 percent. However, the corporate tax rate is brought down to 30 percent from existing 31 percent.

It may be mentioned here that along with retail stock investors, several instituional investors and companies rely on stock investment for their other income.

The governmnent has decided to continue tax credit equal to 20 percent for the tax year and subsequent year in which a company opts for enlistment on the bourse while in order to encourage new listings tax credit equal to 10 percent would be available for another three years.

A dealer said extention in tax credit for new listings was a good news and would definatley encourage new listings.

“However, those optiong for bourse listing through the ‘offer for sale’ would be discouraged as this would cost them 15 percent capital gains tax.”

It may be recalled that CGT was applicable at the rate of 15 percent for filers and 18 percent for non-filers on securities held for less thatn 12 months; rate was 12.5 percent for filers and 16 percent for non-filers on securities held for a period between 12 months to 24 months.

“Overall, the budget announcement is negative for the bourse and would hurt market sentiments,” a leading broker said.

Finance Bill 2017 also proposed a 10 percent tax on every public company other than a scheduled bank or a modaraba, that derives profit for a tax year but does not distribute at least 40 percent of its after tax profits within six months of the end of the tax year through cash or bonus shares.

An analyst said, “The federal budget 2017 is not positive for the corporate sector at all. However, we can term it neutral.”

He said reducing corporate tax rate to 30 percent was a good step, but he was critical of increased rate of tax on cash dividends and a single slab for capital gains tax.

“Pakistan is going to MSCI EM markets and govrnment shold have introduced measures to encourage foreing investment,” Schehzad said adding tax rates must not have been increased if not reduced.