Analysts term relief measures 'encouraging'

Tax measures, such as removal of tax on bonus shares, gradual decline in income tax rate (by 1.0 percent to 29 percent, and 25 percent till 2023) and super tax rates (4 percent to 3 percent for banks and 3 percent to 2 percent for non-banking) and BMR tax credit cutoff increased to 2021, are encouraging, though there was no announcement on the CGT and dividend tax rate cuts which were also being expected, while super tax should have been completely abolished," analysts said.
Bonus tax removal should provide a boost to banks and other key sectors who frequently issue bonuses, senior analyst Khurram Schehzad said. He said mutual funds investors will also again opt for bonus shares issue due to tax arbitrage between bonus and dividends as happened earlier.
Brokers' tax being made adjustable is another positive for the market at large, which should improve volumes and liquidity in the market and reduce cost to investors. He said tax incentives for individuals/salaried class, are also very good, providing long-pending relief to the salaried individuals.
He was of the view that more incentives on the agri side (GST reduced to 4 percent), reduced sales tax on fertilizers (2 percent), and tax incentive for refineries for expansion (20-year tax holiday), with some material support to improve exports sectors, are good measures for both direct and indirect impact on the market in general, and these listed sectors in particular.
Leading analyst Muhammad Sohail said though measures announced by the ruling government seem positive for the stock market. "We believe that these measures could potentially be revisited by new government after the general elections. We expect Pakistan to get into another IMF program in the second half of 2018, which is usually followed by shrinkage in fiscal balance," he added.
The government has announced removal of tax on bonus shares issue, which is now currently at 5 percent of market value. Ever since the imposition of this tax in FY15 budget, there has been a major decline in announcement of bonus shares by listed firms.
The government has proposed to reduce the corporate tax rate to 25 percent (from current 30 percent) during the next 5 years. For FY19, corporate tax rate would be reduced by 1.0 percent to 29 percent, which would result in marginal earnings growth of 1.0 percent for listed companies.