KARACHI: Political noise has been fever pitch in the last few months as the recently ousted PM Imran Khan demanding immediate elections. Even if the government is able to withstand the pressure, elections are due in 18 month max.

The Finance Minister made repeated references that they had a choice to defer politically difficult decisions but decided to go ahead with them in the larger interest. While government has tried to follow the consolidation path to a certain extent, the litmus test will be whether the budget gets the explicit or implicit nod of the IMF.

The resumption of the IMF program is seen as a corner stone in navigating the crisis for Pakistan and could be the elusive trigger that leads to unlocking of valuations that have been stuck at sub 5x PE due to political and economic uncertainty.

Amongst the stated objectives of the budget, the need to incentivize productive sectors instead of non-productive ones and taxing the affluent while protecting the poor stand out but resource constraints always hamper execution.

In addition the political considerations will continue to be an important part as the multi-party ruling coalition has a wafer thin majority and the resignations of PTI are yet to be accepted. Any defections in wake of unpopular decision could cause further volatility.

One of the biggest initiatives in the budget from a PSX perspective is the realigning of tax rates among asset classes.

Property has long been seen as a key source of stalling productive activity and also fuelling speculation and inflation while enjoying favorable tax rates

This budget looks at not only bringing capital gains tax on property in line with stocks but also introduce a number of other measures that will slow down the speculative property market.

Higher transaction costs, quasi-wealth tax (on property and luxury items) and aligning of capital gains tax on property with equities is a big structural positive.

Increase in capital gains tax for traders (i.e. holding period below 12 months) from 12.5% to 15.0% is negative and could overshadow lower rates in other holding period brackets.

On the other hand, deductions allowable for profit on debt, approved pension funds under VPS have also been excluded.