Budget FY20 is almost a 180-degree flip to what Budget FY19 looked like. Where FY19 Budget was marked largely by broad-based concession and tax exemptions accorded to different sectors, PTI’s maiden budget is mainly about scaling down of tax exemptions and concessions to broaden the tax net and remove tax distortions. In short, FY20 Federal Budget is not a populist one unlike most previous budgets.

The corporate sector is also feeling some heat though many of the withdrawals of exemptions and concessions were already expected by the corporate sector and equities. First is the corporate tax rate, which has been frozen at 29 percent for the next two years for non-banking companies, and 35 percent for the banking sector in the latest budget. Recall that corporate tax rates in Pakistan being one of the highest in the region have seen gradual decline over the years in accordance with the gradual reduction of 1 percent each year to 25 percent by tax year 2023.

Second negative from the corporate lens is the reduction in the tax credit for BMR. Presently, tax credit equal to 10 percent is available for corporate industrial undertakings investing in purchase of plant and machinery for the purpose of extension, expansion, balancing, modernizing and replacement at any time between 1st July 2010 and 30th June 2021. This BMR tax credit has been proposed to be reduced to 5 percent for FY19 and zero percent beyond, which means that the period for purchase and installation of machinery is proposed to be restricted up to June 30, 2019 instead of the existing period up to June 30, 2021. This is particularly going to harm companies that are in the expansion phase.

Apart from that, the minimum turnover tax has also been proposed to be enhanced where it has been increased from 0.5 percent to 0.75 percent for the OMCs, and 1.25 percent to 1.5 percent of top line for other companies.

Other measures like keeping the capital gains tax CGT at 15 percent have also not been taken enthusiastically by the market even though it was expected that the government will not announce any decrease here. And while tax on dividends hasn’t been changed for other companies, the same has been proposed to be increased for the power companies from existing 7.5 percent to 15 percent, which might have a diluted negative impact as these companies will probably treat it as a pass through item. And there are sector specific proposals that are being, and will be discussed separately in this space.

Another proposal particularly for the brokerage industry is to transition the brokerage income from final tax regime to minimum tax regime, which will not be liked by at least the bigger players in the brokerage industry.

Two proposals that are linked to some positive impact on the equities indirectly include the proposal of higher on profit from debt and higher CGT along with higher FBR valuations in the real estate sector, which could end up attracting more investment in equities than fixed income securities or the property sector.

Overall, the Budget 2019-20 has some negative implications if looked at from the corporate eyes. But these are difficult times, and an austere budget was expected;