Capital Market Expectations & Budget 2018-19

27^th April is one of the important day for the government as well as for the industry. But it’s even more for investors. It’s natural to look at the budget each year with the lens of Stock Market. PSX – Pakistan Stock Exchange is the barometer of the market value and economic activity. Last 4 years been instrumental for Stock Market and KSE-100 Index witnessed all time high during last year. However Capital Market has expectation from upcoming budget 2018-19.

Keep Check on Fiscal Deficit:

Government managed to keep in check on fiscal deficit in last 4 years and revival of economic activity & industrial growth remained evident. That was well received by market and eventually international credit rating agencies also. The larger challenge is the balance of payments to honour debt servicing.  The sharp rise of trade deficit in recent months to $11bn. The incumbent govt. should contain fiscal deficit within the range in order to get the dividends of structured reforms and attain political consensuses.

Rationalization of Tax on Bonus Shares:

In 2014-15 Govt. introduced 5% tax on value of bonus shares. The levy instead increasing revenue not only dropped the number of bonus issues but also reduce the revenue significantly. The markets are expecting govt. to do rethink and cut the tax on bonus shares.      

CGT on Disposal of Securities:

Frequent change in CGT regime is discouraging for the growth of Capital Market. Market are willing to pay CGT as introducing in 2010 with subsequently change in rates & holding period. Existing rate of 7.5% for securities regardless of holding period needed to be rationalized. CGT has not only affected local but also Foreign Institutional Portfolio Investment. 4 tiers of holding period proposed and caped at 3 years of holding period. However after 3 years of holding period zero rate will give big boost for long term investment in capital markets.           

CGT collection for foreigners:

As being practiced in most of the countries and even in regional markets foreign investors are not being imposed CGT. In Pakistan Foreign Investors do file returns and pay taxes according to the law of the land. It would give impetus to Foreign Portfolio Investment if Govt. choose to exempt on collection of advance CGT.

Rationalization of tax on Dividends:

The markets are expecting the government to reconsider tax on dividends. This is leading to dual taxation of dividends. Firstly, dividends are a post-tax appropriation. Secondly, the 15% to 20% tax on dividends in the hands of the shareholders is leading to dual taxation. Markets are hoping that this tax needed to be revisited and rationalized.

Lastly, the one thing that markets always expect a boost for small investors. In the last few years lot had been done on the regulatory side however awaiting initiatives for incentives for retail investors. That will be a big boost for market sentiments. After all, markets are substantially about investor sentiments!