People associated with the stock market have condemned the levy of Capital Value Tax (CVT) over shares' transactions proposed in the federal budget 2004-05 and said it will put an additional burden on brokers, which would cause a negative impact on the capital market.
However, they welcomed the exemption on capital gains tax for another two years. They said it was the demand of the stock market, which the government had met in this budget. The government in the last budget had extended the exemption by 2005, which this time has extended up to 2007.
Lahore Stock Exchange (LSE) chairman Syed Asim Zafar, commenting on the budget, termed the levy of the CVT on shares as 'detrimental' for the entire stock market, and said, by levying this new tax the government has practically negated the benefit granted in the shape of extension in capital gains tax exemption.
He said it would put a lot of burden on the market, besides, discouraging fresh investment. This, in turn, may result in downtrend in the market, he feared. The market could react in negative when it reopens on Monday, Asim added.
Commenting on the announcement of replacing National Saving Centers with a Pakistan Saving Corporation, the LSE chief said: "As I have understood by this arrangement, it will be like NIT and mutual funds, which will be floated in the market and people could get good yield by investing in it.
However, he pointed out that except the CVT, all measures announced in the budget speech including cut in taxes and duties for agriculture sector, industrial sector and construction industry, will give overall boost to economic activity in the country.
Former chairman and member of LSE Dr Yasir Mahmood said that there was ambiguity about the CVT on shares' transactions.
Whether it will be charged on face value of shares or capital value is not clear. Moreover, there is also confusion about its ratio. As I understand by the budget speech, it is 0.1 percent but on the Internet, the figure is different.
Therefore, it needs to be clarified by the government. I think the finance minister will remove this ambiguity in the press conference he is addressing on Sunday.
But one thing is clear: this tax will raise the trading cost of brokers and, hence, will affect the entire market scenario, Dr Yasir claimed.
"I think this will affect the turnover of shares' transactions in the market," he added. As far as the capital gains tax exemption is concerned, it is a right step taken in the interest of the capital market, he pointed out. About steps announced in the budget, the former LSE chief viewed the government has given relief to various sectors in terms of curtailment of duties which will boost these sectors.
The talk of cutting the budget deficit to 4 percent by the next year and achieving the growth rate of 8 percent by next few years is very encouraging for the economy.
Moreover, Rs 12 billion raise in the annual development programme will create new job opportunities, but the government should ensure that all these funds are utilised. Last year, the government had failed to utilise all such allocations, he pointed out.
Another LSE member and a former director of the exchange Javed Iqbal appreciated the budget and termed it people-, business- and market-friendly.
"It is the first budget in the history of Pakistan in which no tax has been imposed and that is an achievement of the present government and it must be given credit for it." About the CVT on shares' transactions, he said it was a minor tax, which will have hardly any negative effect on the market.
He said the government has exempted stock people from the capital gains tax so if it has levied a new tax with a fractional ratio, it should not disappoint the stockbrokers.
However, he said that the stock market management would have to devise a mechanism to collect this tax from brokers. The government has abolished sales tax and withholding tax for construction sector and import of equipment for agriculture machinery, which will give a jump-start to these sectors, he further stated.
Similarly, the new mechanism for saving schemes will divert the capital flow in the market in a big way as the size of these funds lying unutilised in Saving Centers is even more than that of the banks and financial institutions. Now these funds will come in the market, which will not only give a good return to investors but would also multiply the capitalisation of the market to a larger extend.
"I understand this as a revolutionary step, which the government has taken in this budget," Javed Iqbal remarked.
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