KARACHI, June 15: Reduction in corporate/banks tax rate, incentives for mutual funds industry, abolition of tax on bonus shares and a promise of promulgation of the ‘takeover law’ were viewed as positive measures for the country’s capital market.

“A great number of budget proposals that were forwarded by the Karachi Stock Exchange have been implemented,” KSE chairman Salim Chamdia told Dawn. He said he was pleased with the Finance Minister’s Saturday budget 2002-03 speech. Other measures, which he said, should help boost investment interest in equities included the cut in withholding tax on brokerage commission to 5 from 10 per cent and allowance of 50 per cent initial depreciation.

The KSE chairman, however, went on to say that all of that was his understanding and the document would have to be awaited to know the exact nature and scope of the measures. Most stock traders and analysts complained that the Finance Minister’s budget speech was a double jeopardy: One, it is always difficult to understand the full impact of the measures from the speech and this time it was confounded by PTV’s idea of icing the FM’s perfectly fair English delivery with an Urdu translation. The result: neither was audible.

Stock analyst at InvestCap, Mohammed Sohail said he was not sure whether the corporate tax rate had been reduced for public limited companies as well but the cut in tax rate for banks at 3 per cent had been announced to bring it progressively down to the level of corporates in next five years. He said that the reduction for tax on banks was, however, expected at 4 per cent. Abolition of tax on bonus shares, he said, would be helpful and so also the various attractions apparently announced for mutual funds industry, unit trusts and modarabas.

The reduction in customs duty from 30 to 25 per cent was according to anticipations and the cut in number of slabs to four, was said to be in the right direction. The market was expecting a further reduction on returns on National Savings Schemes (NSCs), which did not come about. Also it was presumed that the minimum investment of Rs300,000 as tax-free investment on NSC would be removed so as to help divert savings towards equities, but it had only been halved to Rs150,000.

An analyst thought this would prove to be a “loophole”. The increase of minimum income for income tax exemption from Rs50,000 to Rs80,000 was also in line with the stock exchanges demand; only the bourse had suggested a higher figure. Certain positive measures—which were not quite clear—like the incentives for corporate mergers, were also said to be timely in the face of growing mergers & acquisition activities in the country.

Traders said that the Finance Minister’s assertion to speed up customs duty drawback and sales tax refunds would be judged from the actions.

Sector wise, analysts expect profitability of tobacco companies to be impacted by the increase in excise duty on cigarettes; textile mills, steel and tile mills to benefit from lower duty; cooking oil and vanaspati producers to face consumer resistance on imposition of GST and car and motorcycle assemblers to see some trimming of profit due to cut in imported duties on cars and motorcycles.

“Some of the nice things the FM has talked about needs to be seen if they materialize for the benefit of the industry, such as the development of Export Processing Zone in the Gawadar Port area,” said one analyst. Another was skeptic about the revenue collection target of Rs460 billion. “Last year the target had to be revised as many as three times,” said he, adding “This one looks equally ambitious.”

APP ADDS: The President of Federation of Pakistan Chamber of Commerce and Industry (FPCCI), Iftikhar Ali Malik said the budget would help strengthen economic base of the country due to the structural reforms introduced by the government in different sectors of the economy.