KARACHI/ISLAMABAD: Trading was halted at the Pakistan Stock Exchange (PSX) on Friday after the benchmark KSE-100 index soared almost 1,500 points — a rise of 5 per cent — a day after the State Bank of Pakistan (SBP) slashed the policy rate by 200 points in a surprise move.
The market opened at 10:15am, with the benchmark index almost 1,000 points in the green. By 10:50am, when trading was halted after activation of the circuit breaker, the index was trading at 32,888 – a rise of 1,559 points or 5pc.
After trading resumed at 11:55am, the market continued to increase its gains for another 20 minutes, peaking for the day at 33,257 points (up 6.15pc or 1,928 points) around 12:15pm, after which it shed some 430 points to close at 32,827 – up 4.8pc or 1,498 points.
Muhammad Faizan Munshy, head of foreign sales at Next Capital Limited, said domestic equities inched up the highest since 2009 after the central bank cut its key policy rate. "The International Monetary Fund's (IMF) approval of a rapid facility fund to Pakistan of almost $1.4 billion also fuelled bullish sentiments," he said.
He said the rupee gained almost two per cent as international donors deferred loan payments. "This also proved to be beneficial for the stock market," he said.
A day earlier, SBP in an emergency meeting of the monetary policy committee had reduced the country's policy rate by 200 points to nine per cent for the third time in less than a month.
The decision was taken "in light of the reduction in growth and inflation" projections released by the International Monetary Fund (IMF) earlier this week, a statement released by the SBP had said.
The statement added the committee "remains ready to take whatever further actions become necessary in response to the evolving economic impact of the coronavirus". The committee had noted the impact of the coronavirus pandemic on the global economy, which it said was "expected to enter into the sharpest downturn since the Great Depression".
"The MPC was of the view that this action [cutting policy rate] would cushion the impact of the coronavirus shock on growth and employment, including by easing borrowing costs andthe debt service burden of households and firms, while also maintaining financial stability," the statement had read.
Meanwhile, the US dollar fell on Friday by Rs3.31 against the rupee in the interbank market. The interbank dollar rates closed at Rs163.57 for the day, declining 1.98% as the rupee strengthened.
On April 16, the interbank market closing rate was reported at Rs166.88 against the US dollar. The gain in rupee today came on the heels of the IMF's approval for disbursement of $1.386 billion to Pakistan to mitigate the economic setbacks caused by the coronavirus pandemic.
The funds came under the Rapid Financing Instrument by the global financial body to help economies brace the impact of the coronavirus shock. Pakistan is a longtime recipient of support from the IMF and is already under a three-year, $6 billion program that was approved last year.
In a related development, the federal cabinet Friday approved an ordinance giving legal effect to the incentive package announced recently by the government for the construction industry in view of the prevailing COVID-19 pandemic in the country.
President Arif Alvi promulgated the Tax Laws (Amendment) Ordinance 2020 providing incentives to the construction sector.
Under the ordinance, a fixed tax regime is being introduced for builders and developers and there will be no withholding tax on the constructional material except cement and steel.
The builders and developers wishing to benefit from the scheme will have to deposit their investments into the bank accounts by December 31 and will be bound to withdraw money from these accounts for investments.
Provision of services has also been exempted from withholding tax. As per the ordinance, tax has been reduced by 90 percent for low cost houses to be constructed under Naya Pakistan Housing Authority.
The source of investment made on construction will not be questioned. The package will be applicable to the projects to be initiated before the end of this year as well as the ongoing incomplete projects, which will get themselves registered under this scheme.
The builders and developers will have to get their new and ongoing projects registered with the Federal Board of Revenue through the IRIS web portal. The existing projects will self-declare the percentage of completion and shall pay fixed tax for the remaining project under the new fixed tax scheme.
One time exemption has been given on the capital gain tax for the house measuring 500 square yards and flat of 4000 square yards. There is exemption of tax on dividends paid to shareholders by builders and developers opting for taxation under this scheme.
There is exemption from Section 111 i.e. unexplained income source: public office holder, his benamidars, spouse or dependents; listed public companies and real estate investment trust (REITs).
The exemption is not available to any criminal proceeds derived from money laundering, extortion and terror financing. Likewise, the provisions of this section shall not apply to capital investment made in a new project in the form of money or land subject to these conditions: conditions for exemptions are; if investment is made by a builder or developer as individual, in case of cash investment, money is deposited in a new bank account on or before Dec. 31, 2020 and in case of investment in the shape of land, individuals to have ownership title of the land at the time of promulgation of this amendment and project must commence by Dec. 31, 2020 and is completed by September 30, 022.
The construction industry will be eligible to benefit from the same kind of facilities available to other industries for the import of plant and machinery. Advance tax on auction of properties has been reduced to five percent from 10 percent.
Sales tax on construction services in the federal capital territory has been brought to zero on the pattern of Punjab. Exemption has also been given on capital value tax in the federal capital territory on the pattern of Punjab and Khyber Pakhtunkhwa.
Prime Minister Imran Khan had announced the incentivized package for the construction industry earlier this month in order to increase employment opportunities in the country in the wake of coronavirus outbreak.
