In the budget, the finance minister proposed increasing the "quite low" withholding tax on brokerage commission to 0.02 from 0.01 percent, slashing corporate tax rate by one percent to 31 percent, doubling one-year applicability to 20 percent tax rebate on new listing at PSX, extending maximum taxable holding period for capital gain on securities from 4 to 5 years and suggesting for non-filers higher tax rates of 18, 16 and 11 percent for holding period of up to one, two and five years, extending super tax for one more year and increasing to 20 percent tax on dividend income for on-filers and keeping tax withheld in excess of 12.5 percent adjustable.
The possible welcome move for equity market stakeholders may be the withdrawal of 16 percent federal excise duty (FED) on brokerage services that Dar said provinces were already charging as sales tax on services. "SBP has also endorsed the proposal in respect of banking services. It is proposed to withdraw FED on these services where Provincial Sales Tax is payable," he declared.
"It looks like an anti-stocks market budget," said Mohammad Yasin Lakhani, president Karachi Stocks Broker Association. On upward revision of 0.01 percent brokerage commission, the former KSE chairman said: "You ask for a tax refund and the field officers of income tax (at FBR) would ask you for 40 percent bribe!" The self-declared dealer of Shariah-compliant equities also blasted the budget makers for "tinkering with" Capital Gains Tax (CGT) exemption. The Capital Value Tax (CVT), he said, was double taxation in the presence of CGT. Business tycoon Arif Habib termed the new budget as "disappointing for capital market". He said while agriculture and exports sectors were rightly incentivized the proposals of stocks market were not given "due consideration", a setback to investment promotion in the growth-hungry country.
Mohammad Sohail, CEO Topline Securities, called the new budgetary measures as "few good few bad". "Looks like a balance budget with no surprises and no out of box measures," the broker said. As expected, agriculture sector, 21 percent of GDP, was incentivized after it shaved 0.5 percent off the country's economic growth, settling at 4.7 percent in outgoing FY16.