Equity market analysts said the Budget2018-19 is capital market friendly this time unlike the past when the measures announced ended up negatively affecting the market. Equity research team at Shajar Capital said most of the demands by Pakistan Stock Exchange (PSX) and stock brokers have been entertained where the tax on bonus shares has been done away with while there has been no mention of changes in Corporate Gain Tax (CGT) regime and tax rate savings on Inter-Corporate dividends.
In the budget 2018-19, WHT on issuance of bonus shares has been withdrawn and receipt of bonus shares has been removed from the definition of income under the Income Tax Ordinance, 2001. This can be a major trigger for the equity market as in FY14; `71 companies issued bonus shares which has now declined to only 25 in 2017. The major beneficiaries of this decision would be mid-tier companies along with banks which used to pay a combination of stock and cash dividends, said the analysts.
Against the broad market consensus of permanently eliminating super tax, government has decided to decrease it by 1% every year. This would definitely provide some respite to companies’ earnings to some extent.
Corporate tax rate has been proposed to be brought down by 1% each year till 25% until FY23. This should improve earnings.
The Shajar Research’s analysts aid tax regime on brokers to be adjustable which we believe will improve liquidity in the market, along with possibly higher trading volumes and lower impact cost. The advance tax collected would be adjustable instead of being final.
An equity analyst Atif Zafar said from equity market’s perspective, we expect the market to positively react to the budget announcement today, where optimism is likely to stem from measures announced related to capital markets.
This year, the Finance Bill proposes to cut down the tax rate on dividends paid out by Real Estate Investment Trusts (REITs) to Individual Unit Holders from 12.5% to 7.5%.
Also, the Finance Bill has maintained Advance Tax on Brokers at 0.02% of value of shares traded, however it proposes to make the tax “adjustable” as opposed to being assumed as “final” tax liability for the Brokers. The Finance Bill proposes to extend the tax credit of 10% (on the amount spent on purchase of Plant & Machinery) for Balancing, Modernization and Replacement (BMR) commissioned by June, 2021. Earlier, the credit was available if the BMR was completed by June, 2019. Meanwhile, the five year Tax Holiday has also been extended on Greenfield Projects, as long as the CoD is declared by June, 2021 (from earlier applicable deadline of June, 2019).
PSX performed exceptionally well to reach an all-time high of 53,124 points in May 2017 from 19,000 in May 2013. The market capitalisation reached almost $100 billion. As a result of political events the stock exchange plunged to 37,919 in December 2017. However, the index has recovered to almost 46,000 points. This year 8,349 companies were registered till March 2018 compared to 5,883 companies in the same period last year. During the last 5 years 33,285 new companies were registered as compared to 17,079 registrations between 2008-13. Registration of such large numbers of new companies reflects buoyancy of businesses.
Published in Daily Times, April 29th 2018.