Budget termed good news for capital markets

KARACHI: President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) Nasser Hyatt Magoo said on Friday the national budget was mostly in line with the recommendations put forward by the country’s apex trade body.

Speaking to Dawn, Mr Magoo said the government had proposed reducing regulatory, customs and additional customs duty on a fair number of products, which would help set the wheels of economy in motion.

“Our only concern is the high collection target of the Federal Board of Revenue (FBR). How will the FBR achieve it given that the government has either lowered or completely done away with a number taxes?”

He expressed the fear the government could rely on mini-budgets to raise additional taxes during the fiscal year.

The collection target of the FBR for 2021-22 is Rs5.82 trillion, which is over 17 per cent higher than a year ago. Non-tax revenue is also set to increase 22pc to Rs2tr.

FPCCI chief says reduction in taxes on products will set wheels of economy in motion

The FPCCI president praised the government for introducing third-party audit in tax assessment-related issues. The move would help curb the harassment of businessmen at the hands of the FBR staff, he said.

He commended the finance minister for raising the ceiling for annual turnover tax on SMEs from Rs10 million to Rs100m and reducing the minimum tax rate from 1.5 per cent to 1.25pc. However, he said the SME sector should have received more support in the form of incentives and tax exemptions.

Mr Magoo said the budget documents did not show whether the government was serious about bringing down food inflation. As an example, he said various taxes still applied to essential kitchen items like sugar and edible oil.

Secretary General of the Overseas Investors Chamber of Commerce and Industry (OICCI) M. Abdul Aleem termed the budget growth-oriented. The rationalisation of customs duties on a large number of imported raw materials would have a positive impact on major sectors like textile, pharma, chemical, steel and food, he said.

“However, certain additional taxes on the use of telecom facilities will negatively impact the telecom companies and need to be reviewed,” he added.

Mr Aleem regretted that the continuation of the minimum tax regime meant the organisations with large turnovers but low profit margins would be subjected to a turnover tax at a (lower-than-before) rate of 1.25pc. This raises their tax liability to twice the normal tax rate, he noted.

According to Ammar H. Khan, a Karachi-based independent economist, the growth target of 4.8pc for 2021-22 is “entirely achievable”. A lot of industrial expansion backed by the central bank’s Temporary Economic Refinance Facility (TERF) will come online in the next fiscal year, thus increasing economic output, he said.

“It’s a spending-oriented budget as opposed to the last couple of budgets that focused on cost-cutting and austerity,” Mr Khan said.

Most analysts termed the budget positive for the capital markets. Stocks in oil refining, steel, pharmaceutical, food, footwear, chemical and textile sectors are likely to benefit from the budget proposals.

“The budget appears highly positive with the reduction in capital gains tax (from 15pc to 12pc),” according to a note issued by AKD Securities. It also praised the removal of withholding tax (WHT) on margin financing by the National Clearing Company of Pakistan as well as the elimination of WHT collected by the Pakistan Stock Exchange from its members.