Budget remains neutral for capital market

KARACHI: The budget is largely neutral for the capital market as the measures fail to touch upon an issue of capital gains tax exemption, analysts said on Friday.

Asif Qureshi, chairman of Optimus Capital Management said some selective incentives were provided to the industries like cement and steel sectors which aimed to boost construction activities in the country.

“Furthermore, the rest of budgetary measures were already whispered and as assured no new tax has been imposed,” said Qureshi. “It appears that owing to COVID19 where economies have been badly hit and are not sure yet what would happen next, the federal budget might be altered following the commencement of the new fiscal year.” There was reduction in regulatory duty from 12.5 percent and 17.5 percent to 6 percent and 11 percent, respectively, on hot rolled coils whereas reduction in federal excise duty on cement from Rs2 per kg to Rs1.75 per kg.

Mohammad Sohail, chief executive officer of Topline Securities said the announcement of the federal budget is largely neutral on equity market’s vantage point. “The government has focused on an expansionary fiscal policy, though it remains on a tight leash to contain fiscal deficit because of the IMF program,” Sohail said. The government has not imposed any new taxes and/or significantly increased taxes.

Tax rates on capital gain on disposal of securities in terms of Division VII, Part I of the First Schedule under section 37A of the Ordinance are being extended to tax year 2021 and onwards. Hence, there is no change in CGT. No change was recorded in collection of tax on dividends. Corporate rate tax remained unchanged whereas super tax has been extended for another year for banks. There was no change for the listed sectors. Hotel industry turnover tax was reduced to 0.5 percent from 1.5 percent.

“We highlight the federal budget announcement positive for cements, steel, consumer and pharmaceutical on the back of reduction in FED and duties”, he said.

“We highlight budget as negative for automobiles and tobacco sectors,” Saad Rafi, head of equity sales at Al Habib Capital Markets. The target fixed for the new fiscal year appeared to be quite optimistic owing to COVID19 and would be missed completely.

Fiscal deficit during the next fiscal year would be near to 10 percent. There is no relief for the capital market and corporate tax, which was expected to be reduced by one percent which has been untouched, with no relaxation given in capital gains tax. Only benefit was given for the sale of property. Now capital gains would be exempted if the holding period is four years from earlier 8 year.

The target fixed for revenue collection appears to be high. Estimates are showing 26 percent growth whereas the economy has been forecasted to grow by 2.3 percent in the new fiscal year.

Saad Hashmey, director research at BMA Capital Management said the budget is neutral with some relief to specific sectors. The revenue increase of over Rs1tn looks high and will be challenging for the government to achieve. “Hence meeting the 7 percent fiscal deficit target looks unlikely.”