Federal Budget FY25 remains neutral to positive for the capital market: experts

KARACHI: Pakistan stocks expected tough tax measures for the capital market. However, there has not been much change and the budget remains neutral to positive for the stock market, according to market experts.

“Contrary to expectations of change in treatment of income from capital gain and dividends to normal tax, affecting net returns of the investors; we believe the budget FY25 is overall positive for the market as Govt. has not changed treatment of CGT to normal tax,” says CEO Topline Securities Mohammed Sohail.

“Alongside this, the maximum rate of 15 per cent tax on CGT has also remained unchanged (though removed slab benefits on holding for more than a year on purchase after July 1, 2024) for tax filers and tax on dividend has also remained unchanged at 15 per cent.”

In anticipation of tough measures, the market lost 4.0 per cent or 3,186 points in the last 12 sessions.

“We believe, this budget will serve as prior action for the new IMF programme and based on the IMF’s May 2024 publication, tax revenues, primary surplus, and current account deficit targets for the government were Rs12.97tr, Rs2.5tr (2.0 per cent of the GDP with the provincial surplus of Rs1.2tr), and $3.7bn (0.8 per cent of the GDP), he adds.

According to him, revenue measures taken in this budget to achieve the desired tax revenue and primary surplus targets are quite realistic, and this will pave the way for Pakistan to enter in a new IMF programme by getting a staff-level agreement (SLA) done in the beginning of July 2024, if approved.

The government has removed slab-wise benefit on capital gain tax (CGT) for holding securities for more than a year on purchase after July 1, 2024. However, the top slab rate is unchanged at 15 per cent for tax filers, while the rate for non-tax filers has increased from 30 per cent to 45 per cent.

“We believe, this is positive for market as it was rumour in the market that, government is mulling to change the treatment of CGT from full and final tax to normal tax. While in actual, there is no change in treatment of CGT this will remain as full and final,” says Sohail.

There is no change proposed in tax rates for dividend income for both filers and non-filers. This is positive for market as there were some news reports suggesting that tax on dividend income will go up.

Also there were speculations about change in treatment of dividend income to normal income. “The status quo on this is positive for the market,” Sohail adds.

There is no change in bonus tax. This will be neutral to positive for the market. Minimum turnover tax has remained unchanged contrary to general expectations of an increase in this rate. This will be positive for low-margin businesses like OMCs, chemicals and steels etc.