Capital market: Increase in tax on dividends, CGT to have negative impact: analysts

Increase in tax on dividends and capital gain tax would have a negative impact on the capital market, analysts say. The analysts expect that investors to book profits before June 30, 2017 to avail the benefits of previous tax regime, but then rebuy to maintain their holdings. The government has increased tax on dividend to 15 percent from 12.5 percent and announced 15 percent capital gain tax on share purchased since July 01, 2013. Previously, the CGT rate varied between 7.5 percent and 15 percent depending on holding period.
A senior analyst Muhammad Sohail said that increase in taxes on dividends and the capital gain tax would have a negative on the capital market. He said that the government has reduced corporate tax rate to 30 percent that would be a positive for the market. On the other hand, the continuation of Super Tax (companies earning more than Rs 500 million to pay additional corporate tax of 3 percent while banks 4 percent) would also be a negative for the market. Minimum Turnover Tax increased to 1.25 percent would be negative. However the proposal of rates of taxes on non-filers to be increased across the board would be neutral.
Syed Atif Zafar at JS Global Capital said that a uniform capital gain tax rate of 15 percent for filers and 20 percent for non-filers has been introduced in the name of simplification of rate structure. There will be no relaxation for long-term investors.
The proposal to increase tax on dividends to 15 percent from present rate of 12.5 percent except for power companies should lower the attractiveness of yield plays. The rate of tax on dividend received from mutual funds is being rationalized and enhanced from existing 10.0 percent to 12.5 percent. Extension of tax credit on listing at the bourse would be positive. At present, upon enlistment of a company in the stock exchange, 20.0 percent tax credit for a period of two tax years is available on the tax payable by such company. Such tax credit is being extended for another two tax years; however, such tax credit shall be allowed at 10.0 percent of the tax payable for each of these subsequent two tax years. The rate of minimum tax is being enhanced from 1.00 percent to 1.25 percent. "We believe it is a negative for loss-making companies or companies working under a PBT margin of 4.0 percent", he said.