Budget reaction: Brokers, KSE board members not on the same page

Brokers say BoD hesitant to express views boldly to finance ministry

KARACHI:

It is not just the federal budget proposals for 2015-16 that stockbrokers have on their mind.

The proposed budget, which calls for enhanced taxation on the capital market, seems to have created a rift between the brokers and the board of directors at the Karachi Stock Exchange (KSE).

“Many brokers believe board members have failed to effectively convey their concerns to the Ministry of Finance with regard to the proposed budget proposals,” said a stockbroker, while speaking to The Express Tribune in a recent interview.

Another broker said those KSE board members that are nominated by the apex regulator hesitate to express the brokers’ view boldly in front of the Ministry of Finance. Four of the 11 members of the KSE board are elected from within the brokerage fraternity while six members are nominated by the Securities and Exchange Commission of Pakistan (SECP). The managing director of the KSE serves as the 11th member of the board.

The alleged differences between brokers and board members came to the fore recently when the KSE Stockbrokers Association issued a press statement on June 8, criticising the Ministry of Finance for presenting a “highly disappointing” budget.

A couple of hours after the release of the press statement, KSE officials called up reporters and informed them about its withdrawal by the KSE Stockbrokers Association. On further inquiry, a spokesman for the association said to “set aside” the association’s statement because the KSE was expected to release its official statement on the same issue within 48 hours.

However, KSE did not release any statement afterwards, resulting in the publication of the association’s statement a few days later in national newspapers.

In an email, KSE Managing Director Nadeem Naqvi refuted the allegation of the questionable performance on part of the SECP-nominated board members. “The SECP-nominated directors have always strived hard to present a balanced view to the apex regulator as well as the Ministry of Finance,” said Naqvi, adding that all board members have largely played a judicious role in balancing the needs of investors, brokers, listed companies and the SECP.

The association’s press statement criticised the federal government for punishing the tax compliant investors “by further burdening them with extra taxes”. From the proposed changes in the capital gains tax (CGT) regime to the taxes on dividends, bonus shares, company reserves and banking transactions, the association used tough language against the government for hurting “captive taxpayers” i.e. corporate and salaried classes.

For example, it said the CGT rate, which the government has proposed to increase up to 15%, should not be more than 5% for 10 years to inspire confidence among investors.

According to National Clearing Company of Pakistan (NCCPL) CEO Muhammad Lukman, the number of currently active unique identification numbers (UINs) is 236,226 only. Market analysts believe it is a pitiful number for a stock market with a capitalisation of around Rs7.4 trillion. Proposed hikes in the CGT rates will only push away investors from the stock market, they believe.

Saying he did not want to directly comment on the CGT issue, Lukman said the tax net should be broadened instead of taxing those who are already fulfilling their tax liability.

According to the KSE managing director, he and the KSE chairman have written separate letters to the Ministry of Finance, saying “certain tax proposals” will be negative for the capital market’s growth and discourage investments.

“I believe the SECP-nominated directors have gone out of their way to convey the brokers’ concerns to the Ministry of Finance,” he said.

Published in The Express Tribune, June 18^th,  2015.

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