The Presidential Ordinance being made part of the Finance Bill is likely to bode well for the stock market on the whole, analysts said. With the reduction in custom duty slabs and sales tax, for the first time post budget inflation number is likely to be on the lower side, they added. "We believe cement and pharmaceutical sectors to do well post the budget as these sectors have been favoured the most", an analyst at JS Global capital said.
As far as the banking sector is concerned, contrary to rumours of imposing a 50 percent tax on income earned from government securities no such move was taken up in the budget. "However, we can see a transfer of funds by banks from money market and income funds as a higher tax rate will be charged on any dividends received from such funds", he added.
More importantly, the Gas Development Infrastructure Surcharge (GIDS) on the Fertiliser sector (except for the fertiliser plants having fixed price contracts) has been revised up to Rs 300 per mmbtu from Rs 197 per mmbtu earlier. "We believe this to be negative for the fertiliser sector if the manufacturers are unable to pass on the full impact of the rise in their costs and we flag FFC as the major loser", he said. "On the whole, we believe the stock market will welcome the budget", he added.
Nevertheless, financing of the fiscal deficit will remain a concern for the investors. He said the federal government announced its fifth budget and as expected, it has restricted itself from increasing any tax rate on any particular sector. While the government has decided not to raise any tax rates, it has, however, cut custom duty slabs from a maximum of 35 percent to 30 percent and proposed to have a single sales tax rate of 16 percent across the board. Additionally, the government has also opted to reduce the turnover tax to 0.5 percent from 1.0 percent earlier and given relief to commercial importers by reducing the withholding tax to 3.0 percent from 5.0 percent earlier. "As the government has not imposed any new taxes to replace the relief given to the aforementioned sectors, we believe it would be tough for the government to achieve an ambitious revenue target of Rs 2.38 trillion, up 22 percent from last year", he said.
On the expenditure side, the government has announced a total outlay of Rs 3.2 trillion, up 16 percent on year-on-year basis. Majority of the expenditure would be on debt servicing (Rs 925 billion) followed by defence (Rs 525 billion). Total subsidy allocated this year stands at Rs 208 billion compared to Rs 512 billion last year. As far as the development expenditure is concerned, total Public Sector Development Programme (PSDP) is proposed at Rs 873 billion up 19 percent. Importantly, the government is estimating a fiscal deficit of Rs 1,185 billion, majority of which will be financed through domestic borrowings.
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