Budget seen bourse-friendly; CGT cut cheered

KARACHI: Stakeholders on Friday cheered a cut in Capital Gains Tax (CGT), announced in the budget, terming it as a shot in the arm for the stock market.

Finance Minister Shaukat Tarin presented the Federal Budget 2021-22 in the National Assembly on Friday amid a cacophony of catcalls, boos, and jeers from the Opposition benches

Ahsan Mehanti, analyst at Arif Habib Corp, said capital markets would outperform with a decrease in the CGT to 12.5 percent from 15 percent and volumes would increase. However, there was no decline in the corporate tax, he added.

The budget would also be beneficial for the auto sector with a cut in taxes on electric vehicles and below 850cc vehicles.

He said that there was no cut in taxes for the listed companies, adding, besides, sectoral benefits were not visible for exports etc. “Over all it is positive for the capital market and stock exchange,” Mehanti added.

Muhammad Sohail of Topline Securities it his initial reaction to budget said it was a spending-led confidence-building budget exercise.

“The biggest challenge will be to deal with IMF and rising commodity prices. “Good for stock market where CGT has been reduced and withholding tax on margin financing abolished,” he said.

He called the budget positive for the Pakistan equities.

Topline Security in a note said the budget, as expected was focused on inclusive and sustainable growth, while providing relief to masses through the Ehsaas Programme (allocation of Rs260 billion), providing cheaper financing and other measures.

“The budget also does not entail any new material taxes, while there have been no changes in tax rates for salaried class.”

As per preliminary analysis, the brokerage said, “we believe the budget announcement is positive for flat steels (cut in HRC duties), pharmaceuticals (cut in duties on import of APIs), IT (zero rating), textiles/consumers/foods (reduction in duties) and refineries (exemption on tax on BMR)”.

It was neutral to positive for power (allocation of subsidy towards PHPL and IPPs), banks (removal of WHT for non-filers), cements and rebar steel (higher allocation for development expenditure) and autos (reduction in duties on car below 850CC), while negative for telecom operators (higher taxes), the Topline report said.

It noted the defence expenditure had been set at Rs1,289 billion for FY22, six percent higher compared to last year’s budget.

“This leaves the federal government with a net deficit Rs413 billion (after adjusting for share of provinces in revenues and subtracting interest expense, pension expense and defense expense) for its other current expenditures and development expenditures,” said the Topline Securitues.

One analyst at KASB Securities said the budget had greatly focused on providing relief to several sectors including offering exemptions in duties.

“The key development is the reduction in CGT by 2.5pps to 12.5 percent, likely enhancing investor sentiments. The auto sector, particularly PSMC, is likely to benefit from increased sales after the reduction in GST and the removal of FED on vehicles under 850cc,” the KASB analyst added.