Stunned by the silence of the federal budget on the Capital Gains Tax on individuals, stockbrokers and analysts had expressed initial impressions that ranged from disappointment to disgust.

But sobered by the morning on Saturday, many were charitable to the Federal Finance Minister, Abdul Hafeez Shaikh, who they said, may not have had the courage to stand up to public backlash in granting concessions to several sectors. That would have added to a hostile opposition in the Parliament.

The focal point of stock dealers was the relaxation in CGT for individuals. Some thought that it had almost assumed the status of a “political tax”. But Mohammad Sohail CEO at brokerage Topline Securities said the market had suffered steep decline in volumes mainly due to this nagging issue.

He complained that the Pakistan equity market, which was once considered to be most vibrant and liquid market in Asia due to an average daily trade of Rs40 billion in cash and single stock futures, had now died down to a turnover of just around Rs4 billion a day—half of last year.

Almost everyone blamed the fading of investor interest to CGT on individuals. But the former chairman of KSE, Arif Habib explained that contrary to general belief, the bourse was not demanding a total exemption on individuals.

He said that all that the market asked for was to treat the levy paid as presumptive tax—full and final settlement, collectable by the stock exchange or the National Clearing Company. He said that between 2004 and 2010, the government was able to raise enormous sums in Capital Value Tax once as high as Rs7 billion. In the outgoing year, the amount in CGT had dwindled to just around Rs260 million, as volumes shrank due to the flight of individuals to safe havens such as gold, commodities, NSS and bank deposits.

So were the small investors spooked by the documentation? A stock broker roared a forceful ‘No’. He said that the record of every single trade and investor could be accessed with a single touch of the button. “It is the possible harassment at the hands of tax man, that the small investors wished to escape”, he said.

Most investors, who had carried market to recent high on the anticipation of positive measures in the budget had reason to brood. A month ago, a team of stockbrokers who had accompanied Pakistan Business Council as delegates to meetings in Islamabad, claimed to have been assured of consideration to the KSE proposals, by the president, the finance minister; secretary finance, the chairman FBR, in varying ways.

“We were categorically told that the CGT relaxation would be available for just the individuals and not for corporates, banks and others institutional investors”, said the prominent stock broker, Aqeel Karim Dhedhi (AKD), a participant of those meetings.

Arif Habib, thought that since the announcements in the budget were just “proposals”, the government may yet grant the relief sought. AKD also concurred with that view, keeping hopes alive for a subsequent revision before the proposals become part of the Finance Act.

Forever a bull, AKD hoped volumes to swell, as new companies seek stock market listings. The budget provides an upward revision from 5-15 per cent tax rebate for new companies that enter the capital market. A market participant, however, said that the government had also wavered, in that the promised five-year period of rebate was reduced to just one year.

Sohail reminded that just one company had floated IPO in 2011, compared to average flotations of 10 in the previous years.

AKD said that a vibrant capital market would also facilitate the government in gaining good price for the State-owned Enterprises (SoEs) that it wishes to privatise. In the first instance shares in Sui Northern, Sui Southern and Pakistan Reinsurance were expected to be put on the block. Some sensed sincerity of the government in going ahead with privatisation, as the budget had allocated Rs75 billion in revenue generation from sell-off.

Some other promises had also remained unfulfilled. Companies that pay 50 per cent or more of their profit after tax in cash dividend to shareholders were expected to receive 0.5 per cent rebate on incremental tax. That however, was not to be. On the positive side, market participants conceded that the reduction in excise duty for cement from Rs700 to Rs500 per ton, to be phased out in three years, bodes well for the cement industry.

The government has earmarked Rs730billions for Public sector Development Programme (PSDP) up 56 per cent from the revised target of last year, which also would favour concrete producers.

Another proposal warmly received by the market was the 100 per cent tax credit on new corporate industrial undertakings which are 100 per cent equity financed up to 5-years after commissioning. The same would be applicable to new balancing/modernisation and replacement (BMR) activities.