Market tumbles as investors worry over capital gains tax

Stocks fell sharply on Monday amid concerns about a proposed capital gains tax and dealers said sentiments were expected to remain negative until clarity on the issue emerges.

The Karachi Stock Exchange’s (KSE) benchmark 100-share index ended 2.55 per cent, or 241.52 points, lower at 9,229.60. During the day, the index fell as low as 9,131.11.

In its budget for fiscal year 2010/11, the government announced that a capital gains tax of 10 per cent would be imposed on stocks held for six months or less and 7.5 per cent on stocks held between six months and a year.

Dealers said the government had previously agreed with the stock market that the capital gains tax will be levied from the start of the 2010-11 fiscal year on July 1. But now there are concerns that the government may seek to tax purchases made before that date as well, they said.

Another disagreement was on the filing of returns for the new tax. Stockbrokers say they need to be filed annually, but the budget states that brokerage houses must submit quarterly returns.

“There are too many uncertainties at the moment, and they are driving the negative sentiment in the market,” said Ashraf Zakaria, a dealer at Ali Hussain Rajabali and Co, a local brokerage house.

“The management of the stock market is trying hard to resolve the issues before the Finance Bill (budget) gets approved in parliament, but for the time being people are worried,” he said.

Sajid Bhanji, a director at Arif Habib Ltd, said stock brokers had expressed their concern about the specifics and implementation of the tax and other related issues in a meeting with the Federal Board of Revenue (FBR) on Saturday.

“However, this meeting was not very fruitful, and while the FBR said that it will get back to the market on the issues, the sentiments are not very good,” said Bhanji. “The sentiment is unlikely to improve until this issue is resolved.”

Monday’s turnover was 89.1 million shares, compared with 67.76 million shares traded on Friday. The total exchange value stood at Rs3.52 billion.

During the day’s trade, 84 stocks closed higher, a massive 328 declined and 16 remained unchanged in value.

Lotte Pakistan was the volume leader with 12.23 million shares losing Rs0.59 to close at Rs8.73. Worldcall Telecom came second with 5.35 million shares losing Rs0.35 to end at Rs3.16. TRG Pakistan came third with 5.11 million shares losing Rs0.39 to close at Rs4.57.

KASB Bank (KSE: KASBB) was the KSE-100 top gainer of the day, its share price rising 5.17 per cent to Rs2.85.

Published in the Express Tribune, June 15^th, 2010.