Despite some tax relief, PSX brokers unsatisfied with budget

Despite relief measures announced for the market, the stockbrokers’ association of the Pakistan Stock Exchange (PSX) has called the Federal Budget 2018-19 an overall disappointment, saying most of its proposals have been ignored.

The complaint came on a day when the KSE-100 Index ended marginally negative, with profit-booking dragging stocks lower after a positive start.

The measures announced in the budget include the abolition of 5% tax on bonus shares, which had been a longstanding demand of the stockbrokers, and 1% annual reduction in corporate tax rate over the next five years, which will take it to 25%.

‘Federal budget is people-friendly’

The government also announced a 1% annual cut in super tax on companies and banks over the next four years, which will eliminate it completely. Also, the Advance Withholding Tax (WHT) collected from stock brokers at 0.02% has been made adjustable.

This WHT was previously a final tax liability, which led to higher taxes for brokers.

However, the stockbrokers were unsatisfied.

“This (disappointed budget) is reflected by the index ending negative (in the first post-budget session),” said the PSX Stockbrokers Association in a statement on Monday. The benchmark dropped 0.12%, or 53.92 points, to close at 45,488.86 points.

The historic budget

Rationalisation of the capital gains tax was the main budget proposal of the stockbrokers that, according to them, had badly hurt investor confidence. However, the government has left the CGT regime unchanged.

The higher rate of CGT – 15% for tax return filers and 20% for non-filers – regardless of the stockholding period against the previous holding period at various tax slabs had resulted in a drastic fall in turnover and lower CGT collection, the association said.

“Last year (FY17), the CGT collection was about Rs18 billion whereas currently it is just a little over Rs1 billion,” the association said. “Net effect is that the government is the main loser and will continue to lose.”

Apart from this, the government has not withdrawn or reduced the tax on dividend paid to the shareholders which was another big demand of the stock players.

“The tax-paid dividend continuous to be taxed at the higher rate without taking into account that the dividend is distributed out of the taxed income of listed companies,” the association said.

The stockbrokers’ association urged the government to take appropriate measures in order to restore investor confidence before the coming into force of the 2018-19 budget at the start of July 2018.