KARACHI: The stock market has welcomed the federal budget 2019-20, as no additional taxes were imposed on the equity market, and traders believe the market would observe a positive momentum going forward.
“We believe equities would become a preferred asset class for investors as other asset classes like Real Estate (Increase in FBR valuation, Increase in Capital Gains Tax), Bank Deposits (higher tax on profits from debt) and National Saving Schemes (Higher withholding tax on profit from debt) have been imposed with additional taxation and stringent disclosure requirements.
“With these changes, equities, which had been at a disadvantage compared to Real Estate with regards to KYC requirements, as well as taxation, now attract lower taxation than real estate as well as debt. These measures will attract more investment into equities compared to Real Estate, while attraction of debt will also reduce with higher taxation,” an analyst at Arif Habib Limited said
Ahsan Mehanti CEO of Arif Habib Commodities said the budget was positive for capital market investment point of view as the taxation measures announced were below market expectation.
“We were expecting increase in corporate tax but it was kept unchanged at 29 percent, while no taxes were imposed on stock trading costs, and we expect a positive momentum at the local bourse going forward.”
As far as corporate sector is concerned, additional taxes and duties have been proposed on auto sector and cement sector, which could impact corporate profitability.
Khurram Shehzad Chief Commercial Officer at JS Global Capital said the budget was not as bad as was expected. “Despite being an austerity budget, it is not as much severe and definitely positive for the equity markets.”
Schehzad said contrary to expectations corporate tax, sales tax and capital gains tax (CGT) were not increased, while the government has proposed reduction in super tax and aligning tax rates for banking sector with the rest of corporate sector.
Analysts believe the budget would dent some of the sectors, but strict measures for the real estate sector, where tax has been increased on the sale of plots and constructed homes, might bring some fresh flows in equities.
Samiullah Tariq, Director research at Arif Habib Limited said that some sectors would receive brunt because of increased federal excise duty on cement from Rs 1.5/ kilogram to Rs 2/kilogram, flat tax rate applied on steel of 17 percent and increase on sales tax on sugar from 8 percent to 17 percent.
“However, series of taxation measures announced on the real estate would divert funds, which were earlier parked in the sector, to stock market while salaried class to pay less tax may start buying mutual funds to get tax exemptions”.
“Budgetary measures will help increase revenue and bring fiscal discipline and stabilization as advised by IMF. Measures on property valuation, non-tax filers, presumptive tax will support bringing down primary deficit,” said Mohammad Sohail, Chief Executive Officer at Topline Securities.
Another factor which might help increase inflows to the capital market has been increase in the taxation numbers on the debt instruments.
Moreover, tax rate on debt instruments has been raised to 15 percent from 10 percent on amount exceeding Rs 5 million, which would attract fresh flows to the market.