TAX REFORMS & AMNESTY IN PAKISTAN

There was considerable expectation in Pakistan that the incumbent Govt. would activate long awaited tax reforms process & to roll out one-time amnesty for undisclosed foreign assets to unearth black money. An attempt to simplified tax mechanism to replace a complex web of central and province level taxes, through National Database & Registration (NADRA)   bringing the larger chunk in tax net and expand Pakistan's economic growth.

Here are key things to note about the Tax Reforms: 

• CNIC numbers to be made NTN numbers for future course to keep better vigilance and compliance of all citizens.
• Substantial cut for salaried class introduced wherein annual income of Rs1.2 MN would be exempted from income tax maximum of 15% to be levied on income above Rs4.8 MN per annum.
• Undisclosed wealth held locally or abroad to be declared after payment of nominal penalty. Pakistani’s living abroad can benefit from this scheme after paying only 2% penalty, while those in Pakistan will be required to pay 5%. Those who avail scheme to be granted one-time amnesty from accountability laws.
• On all property transactions made a uniform 1% presumptive tax (adjustable). Govt. to have the right to purchase any property by paying 100pc over and above its declared value within six months of its registration.
• Govt. to monitor citizens' financial records and issue notices if they find evidence of tax evasion. Penalties to be decided in parliament.

Offshore Assets Declaration:

a)     The foreign exchange repatriation on 2% payment of tax and offers two options for repatriation. The foreign asset holders can invest in five-year bonds at the rate of 3% per annum. But they cannot encash the bond before one year and all encashment will be in Pakistan rupee at the prevailing interbank dollar rate.

b)     Foreign liquid assets like cash, securities and bonds held abroad and in local dollar accounts may be declared with a 5% penalty.

c)     Dollar account holders in Pakistan who have purchased dollars with undeclared funds can also regularise them on 2% payment.

Property Tax Reforms:

On any property transaction citizen will have to pay a 1% 'presumptive tax', tax will be adjusted in their annual taxes. FBR/DC rate on property being abolished from 1st July 2018 and provinces being also taken onboard. Property worth over Rs4 MN is not allowed for non-filers from July 1, 2018 to be purchased.

Govt. now holds the right to buy any property that a citizen holds by paying 100% over its declared price, this will hold for six months from the registration of the property starting fiscal 2019.  The rate will fall to 75% in fiscal 2020, and 50% in fiscal 2021 to dis-incentivise under reporting.

Prospects of the Reforms & Amnesty:

Tax reforms and amnesty scheme to bring back the offshore wealth and regularize foreign assets of Pakistanis living abroad, paving way for the country to repatriate not only considerable foreign remittances but also give all Pakistani citizens a opportunity weather local or living abroad to legitimate their wealth and bring into the fold of documented economy. It will not only enhance foreign capital inflows into the capital market but also give impetus to economic activity in country at large.

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!

SBP Choose to Maintain Key Policy Rate

There has been a great deal of speculation regarding the policy review by the State Bank of Pakistan (SBP). With the recent devaluation, expected inflation hike, all eyes were focused on the view that the SBP Monetary Policy takes on borrowing rates. However SBP held them steady.

·         Inflation:

During the last policy review meeting in Jan this year, the SBP increasing policy rate by 25 basis points at 6.00% on preemptive measure in-order to cope with economic challenges.  It had shifted its policy stance the reason for this move was the risk of inflation. However, the average Consumer Price Index (CPI) inflation was as low as 3.26% for the month of Mar on YoY compared Feb’s 3.80%. Weakening currency likely to sharpen the impact on retail inflation.

·         Vulnerable External Account:

Pakistan’s external debt could jump to $93.3 billion by this June’s 2018 projected level.  CPEC investments could accelerate the build-up of related external payment obligations, adding Pakistan’s capacity to repay could deteriorate at a faster pace, with faster depletion of foreign exchange reserves having adverse effects on economic growth. However recent Rupee depreciation allowing greater exchange rate flexibility on permanent basis may help to contain the external pressure.

·         Domestic Demand Pressure:

Though moving ahead has been good until now, but growing consumer demand are adding domestic pressure.

·         GDP Growth Could be Driver:

The growth likely to happen as agro sector continues to showing positive signs. While the Large Scale Industrial sector is already out performing & showing consistent growth and a turnaround in the capital investment cycle. All this is indicative of higher growth potential in the coming quarters.

Despite the fact that inflation remained controlled & around 4% after the first devaluation back in Dec last. SBP may remain cautious on key rates during the upcoming policy reviews & SBP may not really hesitate to hike rates if the situation actually warranted. 

Understanding the Importance of Stop Loss Order

Investing in Stock Market like in any other business needs one common principle to follow how good you manage your business risk. You need to do your homework before getting into the world of stock investments. No matter how much you analyse the market trends, there is always a risk that the market will show high volatility. In such situations, using a stop loss can help you sail through. With stop loss, you can limit the amount of money you lose on a stock. Stop loss helps to protect your assets.

What Is Stop Loss?

Stop loss is an order placed with the stock broker to buy or sell a stock when it reaches a certain price. A Stop Loss Order is designed to limit a investor’s loss on a position of a Stock. In simple words, the purpose of stop loss is to get you out of the stock position before the price falls further. It indicates maximum loss that a Investor/trader is willing to absorb.

How does Stop Loss Works?

There is no bench mark for using Stop Loss at any level, Its all your trading strategy. However If you are using Online Trading Platform, you may set Stop Loss according to your risk appetite. If you are investing with dealer/trader assistance then may ask your trader to set stop loss order. If you are an active trader, you might place a stop loss at 5% below the current market price or the price at which you bought the shares. Similarly, if you are a long-term investor, you might place the stop loss at 15% or more.  Its all about your trading strategy.       

Importance of Stop Loss:

Having understood the basics of Stop Loss, Its significant how best we utilize this tool and why it’s critical for a trader. Here are the reasons why Stop Loss is very important.

·       

•      Every trader can invest in market only with limited capital, primary aim is to protect your capital. The only measurable tool is Stop Loss to restrict your potential losses.

• ·     Stop Loss infuses discipline in the trading for any investor. One of the key traits of Smart Trader.

• ·       By placing Stop Loss Order on all open orders, you can measure your potential losses & figure out the capital at your risk.

• ·    Stop Loss enables blend of capital. The aim is to keep rolling your capital and compounding your returns on regular basis.

• ·     Stop Loss Order’s are the best defense against Volatility. Stock Market  lived with Volatility as a  default, only way to protect your risk.      

Protecting your investments is a smart way to invest in stock market. If you are not willing to hold your investments for long, then it is a good idea to set stop loss. Stop loss is a great tool if used properly, yet many investors fail to use it. You should think of stop loss like an insurance policy, it costs you nothing but in situations when your call on the market goes wrong, it can protect you and save investments.

At AZEE Securities, we encourage novice traders and investors. With our experienced team’s proven and profitable trading strategies which can help you make better trading and investing decisions.

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