PSX optimistic as uncertainty ends

MD says hike in capital gains tax on sale of stocks, dividend income to rejuvenate bourse

KARACHI:

The Pakistan Stock Exchange (PSX), Managing Director & CEO Farrukh H Khan has termed the budget for 2024-25 positive for the economy, believing that the end of uncertainty over the massive hike in capital gains tax (CGT) on the sale of stocks and dividend income should rejuvenate the national bourse.

Arif Habib Limited’s Head of Research, Tahir Abbas, projected a strong rally at the PSX in the short run, saying that no increase in the rate of taxes on shares business may see the stock market bouncing back to the recent all-time high above 76,000 points from Wednesday’s close at 72,797 points.
To recall, the PSX benchmark KSE 100 Index had cumulatively lost around 4% or 3,000 points in the first 11 days of June on speculation about a significant hike in the CGT rate and dividend income at the PSX.

While talking to The Express Tribune, Khan congratulated the government of Prime Minister Shehbaz Sharif and Finance Minister Muhammad Aurangzeb for presenting the “brave budget under the provided tough conditions.” He said the budget measures would support economic stabilisation and put the economy on a growth trajectory in two to three years. “All the political parties and societies should be on the same page to support the economy,” he emphasised.

He acknowledged that some changes in the CGT rate regime may “be slightly negative for the market (PSX).” However, he stressed that the overall budget is positive for the economy and should positively impact the market as well. The stock market remains a barometer to gauge economic performance. “The stock market had performed negatively while the economy was underperforming in the recent past. Now, when the budgetary measures are supportive towards the economy, they should positively support activities at the stock market as well.”

Earlier, the PSX benchmark KSE 100 Index had gained around 90% in the first 11 months of FY24 to over 76,000 points in May from around 40,000 points in June 2023. For the past several years, the stock market had been demanding that the government align the CGT rate on securities with those applicable to property and real estate.
While presenting the budget in the national assembly on Wednesday, Finance Minister Aurangzeb announced that he had accepted the PSX proposal, increasing the CGT rate on immovable property to the level of the highest slab of CGT at 15% on the sale of securities for tax-return-filers, aligning the rate. Earlier, the highest slab of CGT on property was 10%. Aurangzeb said the slab-based CGT rate is being abolished in both the stock market and the real estate sector. There will be a uniform CGT rate of 15% for filers effective July 1, 2024, irrespective of the holding period for securities and properties.
However, there will be different rates of CGT for non-filers, up to 45% on the sale of securities and properties. PSX MD and CEO Khan further said there are hardly any non-filers working at the PSX. “The majority of the investors at the PSX are filers, as the Pakistan Stock Market has remained a well-documented sector of the economy. Non-filers may be found investing in the real estate sector so far.” He said the measure of aligning the CGT rate on stocks with properties would encourage non-filers to become filers and help the government achieve its target of increasing the number of taxpayers in the country. This may also encourage real estate investors to relocate investments to the stock market.
Aurangzeb also announced the imposition of a 5% Federal Excise Duty (FED) on new plots and residential and commercial properties to remove speculation and bring stability to the real estate sector. Although the imposition of FED and increase in the CGT rate stands negative for the real estate and properties sector, the tax measure may help bring down property prices within the reach of the common man and make it affordable for low-income groups to own a home going forward.