The incumbent government is set to build a strategy to navigate through complicated times where the FY20 Budget will address tough economic conditions to revive economic growth (i.e. restrict the twin deficits and target stringent revenue goals via increase in GST, higher taxes on salaried class and enhanced documentation of the economy).
- Further, approval of the IMF program is subject to some prior conditions which will also be addressed in the Budget; these include reducing the primary deficit to 0.6% of GDP led primarily by augmenting tax collection to an ambitious PKR 5.5trn.
- With that said, broad proposals directly impacting the equity bourse include alignment of CGT on securities with the rates of CGT on sale of immovable property, whereas companies could feel the brunt of continuation of super tax on corporates earning above PKR 500mn and corporate tax rate at 29%, together with other revenue and taxation measures translating into negative bearings.
- From sectoral perspective, we expect the budget to be negative for the following sectors: Cements (increase in FED by PKR 500/ton along with stagnant to negative PSDP allocation), Textile (elimination of zero rated regime), Steel (hike in GST along with stagnant to negative PSDP allocation) and Autos (increase in FED along with higher GST).