Possible good news about future leverage products return

KARACHI: Future leverage products may provide financiers with an attractive tax-adjusted return, according to analysts. Financiers of leverage products will be taxed at a rate of 10 per cent, plus KIBOR’s eight per cent, according to analysts.

Furthermore it has been revealed that Intraday  trading  will  be  taxed  at a rate of 10 percent as modalities regarding the capital gains tax continue to unravel at a gradual pace two weeks after its implementation.

Efforts to resolve CGT uncertainty continue

A lack  of  domestic  experience  on  capital  gains  tax, changes  in the Finance  Ministry  after  the  initial  announcement  of  CGT  and  the last  minute  changes demanded by the Senate Committee on Finance means that KSE is in an undesirable situation where  details are still being worked out almost two weeks after implementation of CGT on July 1st.

A KSE  press release over the weekend briefed the outcome of the recent meeting of the joint committee  on  CGT  modalities  formed  by  Finance  Minister  where  some  clarity  has  emerged  But  few  crucial  questions are still under discussion, according to KASB securities’ analysts.

Factors supporting volumes

Two  factors  traditionally  supporting  volumes  at  KSE  in  addition  to  leverage  products  have  been  frequent  day  trading  and  no  requirement  to  disclose  source  of  income.  Talks  have  clarified that intraday and derivative trading gains will be taxed at 10%, mitigating concerns that  day trading gain might be treated as speculative activity and taxed at 35%.

Reportedly, KSE had demanded that investors with investment up to Rs20 million should not be asked to reveal their source of income. FBR has apparently turned down this proposal which may be construed negatively by retailers; who constitute 50 per cent of the volumes, and could see KSE continuing efforts on this front.

Published in The  Express Tribune, July 14^th, 2010.