KARACHI: Pakistan’s Stock Exchange (PSX) is expected to experience a “bumpy ride” in the coming days due to what some analysts described as a challenging new budget Pakistan is set to announce on June 10 in line with recommendations from the International Monetary Fund (IMF).
Prime Minister Shehbaz Sharif’s administration has been in talks with the IMF over its new fiscal plan, though the Fund’s team left Pakistan last week without reaching an agreement on key issues, including higher defense spending and the proposed taxation of agricultural income.
As a result, the benchmark KSE-100 Index remained largely flat in recent days and slipped 0.7 per cent to 118,221 points on Monday, following rumors that government planned to raise the Capital Gains Tax (CGT) on share trading income.
“Given the new measures that have been IMF-driven and that are impacting sentiment at the stock exchange, we are expecting some bumpy rides and [do] not [expect] a clean ride up like we saw in the prior year,” Ahsan Mehanti, chief executive officer at Arif Habib Commodities, said while talking to media.
Finance Minister Muhammad Aurangzeb is expected to present the new budget on June 10 in Pakistan’s National Assembly, the parliament’s lower house, after the government postponed its earlier budget date of May 2 by nearly a week.
The prevailing uncertainty has kept small investors like Abdur Rauf and Jawed Khanani from buying stocks, fearing an unfavorable outcome from the ongoing budget talks between the government and the IMF.
“If the budget turns out negative for the market, our money will get stuck,” said Rauf, a 68-year-old retailer, who said his “investment level has come down to 25 per cent due to the budget factor.”
He maintained the government, by taxing bonus shares, was discouraging listed companies from issuing them to shareholders.
“They [the companies] are now giving dividends, which too have been taxed at 15 per cent for tax filers and 30 percent for non-filers,” he said, adding, “after deducting the dividend tax and members’ [brokers’] commission, the investor is left with little money.”
Due to heavy taxation, small investors, mostly households and retired salaried individuals, have almost disappeared from the equity market, while large investors are also operating under pressure.
“The government should exempt dividends [from taxes], reduce the [brokers’] commission and abolish the tax on bonus shares so that investors could get some relief from companies and fresh investments could come to the market,” Rauf said.
Khanani also expressed concern over rumors of increased tax on dividend income and hoped the new budget would bring down existing tax rates.
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