Home »Budgets » 2006-07 » Raise in CVT to depress investor sentiment

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  • Jun 6th, 2006
  • Comments Off on Raise in CVT to depress investor sentiment
The government has raised the tax rate on share purchases from 0.01 percent to 0.02 percent to be effective from the new fiscal year and it would in the short-term, depress the investors'' sentiment and might hurt the daily volume.

Aqeel Karim Dedhi, chairman of Aqeel Karim Dedhi Securities said that the increase in tax rate to 0.02 percent from 0.01 percent already had its affect in the market, as was rumoured last week.

The participants have discounted this development but it would surely create an adverse impact on the small investors. The market''s initial reaction would be negative but would close on a positive note as the government has announced series of measures prompting growth and investment.

Siddique Dalal, a broker and director at the Karachi Stock Exchange said that the budgetary measures are aimed to provide maximum benefits to common man.

The tax relief and cut in customs duties on agriculture and allied products would help stabilise the prices leading to cooling down effect on the inflation rate.

The increase in tax rate of 0.01 percent to 0.02 percent is likely to depress the sentiment for the short-term and might hurt the daily volume. The amount raised is too small and the positive development would help soon absorb and the market would see healthy activity in the sessions to come.

Nasim Beg, chief executive officer of the Arif Habib Investments said that the initial reaction of the investors would be negative following the increase in CVT but the share prices would improve as the market was already whispering that the government might increase the tax rate.

It would curb speculation and might reduce quantum of liquidity in the market because the day traders are one of the driving forces behind generating funds in the stock market.

Mohammad Sohail, director research at Jahangir Siddiqui Capital Markets Ltd said, that the overall impact on the stock market is neutral as the increase in the tax rate is quite nominal.

The downside would be limited and equities are bound to improve. Several measures including abolishment of deletion plan, introduction of tariff based mechanism, import duties on cars to remain unchanged and removal of customs duty on raw material and machinery for the construction industry bodes well for the equities.

Salman Naqvi, from Abba Ali Habib said that the overall impact is neutral, the market men have already discounted this factor and the prices are quite cheaper following the recent bearish spell.

The decline would be short lived and the index would propel upwards in the coming sessions. The five percent capital value tax levy on 500 square yards plots and above would discourage speculative activity and prices would see correction. Outflow of funds from the real estate was likely to park in the equity market.

Copyright Business Recorder, 2006


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