The federal budget announcement for financial year 2017-18 brought rather disappointing news for the stock market as the finance ministry ignored all its recommendations and instead increased the incidence of tax on cash dividends and capital gains.
It was surprising for the elected directors on PSX board that none of their suggestions were incorporated in federal budget. A PSX director said,
“Market was performing and foreign interest was pending after the MSCI upgrade and given the improving economic indicators we were confident the government would provide some incentive.”
Government has announced a fixed regime of capital gains tax (CGT) on stocks trading wherein regardless of holding period 15 percent tax is imposed for filers and 20 percent for non-filers. Income tax on cash perquisite is also raised to 15 percent from existing 12.5 percent. However, the corporate tax rate is brought down by one percent to 30 percent. Along with retail stock investors, several institutional investors and companies rely on stock investment for their other income and they are likely to be affected by these changes.
The government has decided to continue tax credit equal to 20 percent for the tax year and subsequent year in which a company opts for enlistment on the bourse. However, tax credit equal to 10 percent would be available for another three years to encourage new listings. “Overall, the budget announcement is negative for the bourse and would hurt market sentiments,” a leading broker said.