Hi everyone! I hope you are all doing well. Welcome back to another blog. This article will discuss the topic in detail “Budget 23-24 Has No Major Impact on Stock Market”. The International Monetary Fund (IMF) has already provided indications. That it expects the budget to be in line with the objectives of the program. The September 2022 IMF Country Report on Pakistan projected that Pakistan would have a budget deficit of 4.0 percent of GDP. And a primary surplus of 0.5 percent of GDP for the fiscal year 2024 (FY24), as stated in the report.
The report highlighted that the government has set its sights on attaining a fiscal deficit target of 6.54 percent. And a primary surplus goal of 0.4 percent for the fiscal year 2024 (FY24). Moreover, alongside the budgetary considerations, the International Monetary Fund (IMF) is eagerly anticipating the assurance of credible financing commitments. Also, the effective functioning of the foreign exchange (FX) market.
Budget’s Stock Market Measures
The recently announced budget included a range of significant measures that specifically target the stock market and various key sectors:
- The regulatory authorities have recently re-imposed a 10 percent final withholding tax on the issuance of bonus shares by companies, with a higher rate of 20 percent applicable for non-ATL entities.
- Additionally, this new tax obligation is likely to compel companies to reconsider the announcement of bonus shares, which could have a direct impact on the trading volume and liquidity within the market.
Least Turnover Tax
- Although, companies listed on PSX benefit as minimum tax liability on turnover is reduced from 1.25 percent to 1.0 percent. This change is particularly advantageous for loss-making and low-margin companies.
Introduction of Super Tax
- In the tax year 2022, individuals in specific industries had to pay a super tax of 10 percent if their income exceeded Rs. 300 million. However, these parties challenged the tax in court and were asked to pay only 50 percent.
- In the latest budget for FY24, all companies with income above Rs. 500 million will now have to pay a 10 percent super tax. This means that the tax rate for companies earning above Rs. 500 million is now 39 percent. However, this change has a negative impact on all other sectors not mentioned in the previous list.
- Additionally, the tax authorities have introduced new income slabs. Individuals earning between Rs. 350 million and Rs. 400 million will be taxed at 6 percent, while those earning between Rs. 400 million and Rs. 500 million will be taxed at 8 percent. Individuals with an income of Rs. 500 million and above will face a 10 percent tax rate.
- These changes aim to ensure a more comprehensive application of the super tax and adjust tax rates based on income levels.
- Also, after careful consideration and evaluation, the government has made the decision to maintain the capital gains tax (CGT) at its existing levels, aligning with their initial understanding and assessment of the situation.
- According to the report, the tax on dividends has been reviewed, and it has been determined that there are no changes to the existing tax rates applicable to dividends.
Corporate Dividend Taxation
- The government has not granted any tax relief on intercorporate dividend tax. Despite proposals put forth by different trade and commerce bodies, there is currently no provision to remove taxation on intercorporate dividends, which aims to promote the process of corporatization and enhance business growth.
Taxation on Retained Earnings
- Contrary to the prevailing market expectation, the Government has made a significant decision by refraining from imposing taxes on reserves and retained earnings. This unexpected move has caught many by surprise, as it defines the anticipated measures aimed at taxing these financial components.
New Tax on Unexpected Income, Profits & Gains
- The government can impose an additional tax of up to 50% on any unexpected income earned in the past five tax years starting from 2023.
- Income tax exemption for FATA/PATA residents is extended until June 30, 2024, affecting Steel rebar producers.
- The Pharma sector receives an incentive with the inclusion of one more API and three drugs in the duty-free regime.
- A reduced fixed tax rate of 0.25% is applicable to IT & ITeS exports for the tax years 2024, 2025, and 2026.
- The exemption for profits on property or share sales to REIT schemes is extended until June 30, 2024.
- IT and IT-enabled service exporters receive an incentive with the duty-free import of IT equipment worth 1% of their export proceeds.
- Moreover, a 0.6% advance adjustable withholding tax is reintroduced on cash withdrawals by non-ATL individuals.
- Additionally, customs duty on non-localized (CKD) Heavy Commercial Vehicles (HCVs) is reduced from 10% to 5%.
According to the findings presented in the report, it has been observed that the Pakistani market is presently experiencing a significant downturn, with the price-to-earnings ratio (PE) reaching a record low of 2.8x. This current PE level stands in stark contrast to the average PE values of 7.2x and 8.1x over the past five and ten years, respectively. The report emphasizes that this exceptionally low PE reflects the market’s anticipation of a pronounced probability of Debt Restructuring, thereby indicating potential challenges in the financial landscape.
FOR MORE VISIT OUR OFFICIAL WEBSITE.