Cut in CGT, deletion of WHT positive for capital market: analysts

KARACHI: With the reduction in Capital Gains Tax to 12.5 percent and deletion of WHT, the Federal Budget for FY22 is positive for Pakistan equities, analysts said.

The federal budget for FY22 was presented by Finance Minister Shaukat Tarin in the National Assembly on Friday.

"We believe the budget announcement is mostly positive for Pakistan equities," Muhammad Sohail, leading analyst at CEO of Topline Securities said.

Some of the key announcements from the budget are reduction in Capital Gains Tax to 12.5 percent from 15.0 percent with a view to lower rates further and deletion of WHT on NCCPL Margin financing. The Turnover Tax has been reduced to 1.25 percent from 1.5 percent.

"The budget, as expected has focused on inclusive and sustainable growth, while providing relief to masses through the Ehsaas Program (allocation of Rs 260 billion), providing cheaper financing and other measures," Muhammad Sohail said.

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

As per preliminary analysis, he believed 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). The budget is 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).

According to him, the budget is negative for Telecom operators due to higher taxes.

The government has set a GDP growth target of 4.8 percent for FY22 versus provisional GDP growth of 3.94 percent in FY21. The government expects Agriculture, Industrial and Services sector to grow by 3.5 percent, 6.5 percent and 4.7 percent, respectively during FY22.

An analyst at AKD Securities said that the Budget'22 appears highly positive with the reduction in CGT being a key development - after years of demand by the investment fraternity. At the same time, Capital Market budgetary measures include removal of WHT on marginal financing by NCCPL and removal of WHT collected from members by the PSX.

He said initial impression indicates the Refinery sector as a key beneficiary (10 year tax exemption on deep conversion new refiners and BMR for existing). The incidence of tax exemption hints at likely approval of other tenets of the Refinery Policy in the upcoming days.

Other beneficiaries of Budget'22 include Pharmas (exemption of CD and ACD on APIs), Food (duty relaxation on RM), Footwear (duty relaxation on RM), Chemicals (duty relaxation on RM), Textiles (reduction/exemption of CD, ACD and RD on RM falling under 589 PCTs; rationalization of WHT for exporters) and Food (reduction/exemption of CD/ACD for poultry industry and RM for food processing industry).

He said budget will have negative connotation for 800cc below manufacturers (removal of RD and CD on 850cc below CBUs).

Copyright Business Recorder, 2021