PSX likely to go up by over 1500 points after tax relief

Govt expected to amend CGT law to make it workable for market

KARACHI: The Pakistan Stock Exchange (PSX) has gradually moved up a net 1,000 points since premier Imran Khan assured stockbrokers that the government would amend relevant laws to give a fresh impetus to the market sooner rather than later.

With preparation for the mini-budget, which is due on January 23, in full swing in Islamabad, the stockbrokers speculate the good days are set to return as budget leakages suggest the government is ready to announce what it promised in December 2018.

“As far as we know, the government has accepted almost all our proposals, which will be made part of the forthcoming mini-budget,” PSX Stockbrokers Association General Secretary Muhammad Adil Ghaffar told The Express Tribune. However, “we don’t know what will be the final announcement.”

The government is ready to amend the capital gains tax (CGT) law to make it workable for the market. “It is set to re-introduce three different slabs under the CGT regime, which will be similar to the ones applicable to property sale and purchase,” he added.

If an owner sells property within one year of the purchase, the CGT is collected at the rate of 10%; if he sells after one year, but within two years, the tax rate is 7.5%, and if he sells after two years, but within three years, the rate is 5% and after three years, there is no CGT at all, Ghaffar explained.

Then finance minister Ishaq Dar had fixed the CGT at the highest rate of 15% (20% for non-filers of tax returns) and had abolished all lower slabs available under the previous CGT regime in the budget for FY18. This was one of the reasons behind the Asia’s best performing market in 2016 turning into the world’s worst performing market in 2017.

The PSX still remained among the top five worst performing markets in the world at the end of December 2018.

The new CGT regime would allow investors to carry forward losses and adjust them against profit within three years, he said.

The government has also accepted the removal of 0.02% tax on the sale and purchase of shares collected from the brokerage houses. “This will help increase trade activities in the market,” he said.

The government was also expected to reduce the tax on dividend income to 10% from 15% and remove tax on the dividend to be paid to parent companies by their subsidiaries, he said. If such measures are announced, the PSX’s benchmark KSE 100-share Index will increase by another 1,500-2,000 points in the short run. “The uptrend in the market came since PM Khan promised to change the prevailing laws to make them workable,” he said. Since December 9, 2018, when the stockbrokers met Khan in Karachi, the index went up by a net 982 points, or 2.54%, to 39,543.77 points on Monday.

Sector-wise impact

In a commentary to its clients, JS Research presented the impact of the potential measures on listed sectors at the PSX.

Cement: The federal excise duty (FED) on cement is expected to be increased by Rs0.25 per kg to Rs1.75. This will be negative for the sector.



Fertiliser: Relief on gas infrastructure development cess (GIDC) will be positive for the sector.

Autos: Permission to non-filers to purchase vehicles, decrease in imported cars’ age limit and increase in import duty on cars of more than 1,800cc will be positive for the sector.

Banks: Reduction or removal of withholding tax on banking transactions/cash withdrawals for filers and non-filers will be positive for the sector.

Textile: Decrease in import duty on raw material will be positive for the sector.

Steel: 1% higher customs duty will be neutral.

Oil marketing companies: Uniform general sales tax of 17% on all petroleum products will be neutral for the sector.

Paper and board: Increase in duty on imported paper will be positive for the sector.



Tobacco: Increase in federal excise duty would be negative for the sector.

Chemicals and tiles: 1% increase in customs duty would be neutral for the sectors.

Telecom: Re-introduction of 17% general sales tax (GST) would be neutral for the sector.

Increase in GST from 17% to 18% would be negative and swift reduction in super tax would be positive in general, according to the brokerage house.

Published in The Express Tribune, January 22^nd, 2019.

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