Budget 2009-10 seen having little impact on stocks

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Govt. Policies - Budget

ISLAMABA : Budget for the 2009/10 fiscal year is likely to have little impact on the stock market despite a new tax on the services sector, dealers said on Sunday.

Unveiling the budget in parliament on Saturday, Minister of State for Finance Hina Rabbani Khar said the government aimed to boost gross domestic product growth to 3.3 percent in the fiscal year beginning on July 1 from an expected 2 percent this year.

The economy is being kept afloat by a $7.6 billion bail-out by the International Monetary Fund (IMF) agreed in November and more than a third of Pakistan's 170 million people are living in poverty.

Adviser to the prime minister on finance Shaukat Tarin said on Sunday "the measures taken are to revive the economy but with a human face".

But the macro-economic targets for the new fiscal year seem ambitious, analysts said, warning of problems if foreign funds, which the government is depending on to meet its goals, do not materialise.

In announcing several new taxes, Khar said a 16 percent federal excise duty (FED) would be charged on fees charged by banks, stock brokers, insurance companies and ports.

That is projected to raise 16 billion rupees ($197.4 million).

However, a member of the government's economic advisory council told Reuters that the government decided to remove a 0.02 percent capital value tax (CVT) on the purchase of shares while imposing the new tax on brokers' commissions.

"In view of the new sales tax on stock brokers' commissions, the government has decided to abolish the CVT on the purchase of shares," said Sakib Sherani, a member of the government's economic advisory council.


The decision to remove the capital value tax and instead charge the excise duty on commissions would have little impact on the stock market, dealers said.

"The affect of the FED on brokers' commission will be neutralised by the removal of CVT," said Asif Qureshi, director at Invisor Securities Ltd.

Dealers said there may be a neutral to negative impact on the banking and insurance sector following the announcement to impose the 16 percent excise duty on the fees they charge.

The Karachi stock market benchmark index <.KSE> has risen 20.4 percent this year, after a 58.3 percent drop in 2008.

But dealers said it is still a fragile market, with worry about security clouding the outlook in the medium- to long-term.

Nuclear-armed Pakistan, a major Western ally, is fighting Islamist militancy and is also trying to revive an economy in virtual recession.

Separately, a wave of violence between rival political factions is sweeping the country's biggest city and financial capital Karachi.

The KSE-index ended 0.46 percent, or 32.48 points, lower at 7,059.48 on turnover of about 107 million shares on Friday.

De facto finance minister Tarin said he was confident that foreign funds would come, adding that $4.8 billion had come in this year from multilateral agencies and another $4 billion was expected next year.

The Friends of Pakistan group of allies and donors is expected to provide funding worth $5.28 billion over the next two years, he said.
Source: http://www.brecorder.com


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