Federal Budget FY23: Impact on stock market.

Byline: SHABBIR KAZMI

Contrary to market expectations, measures announced in Federal Budget FY23 are being termed 'Neutral to Positive' for the stock market. With IMF program in sight, there was a general expectation that there may be very tough measures across all sectors. However, the government has announced a mix of positive and negative measures for listed sectors.

Some of the key measures announced in budget relating to stock market and sectors include:

Tax on all persons including companies and AOPs where the income exceeds Rs300 million are now subject to an additional tax at the rate of 2% of such income. This is likely to impact profitability of the listed companies by around 4%.

Tax rate on banking companies has been increased from 39% to 42% including additional 3% super tax. This is likely to impact profitability of banks by around 5%.

Tax credit on available on mutual fund investment has been withdrawn. Though, a lot of people avail tax credit by investing in fixed income mutual funds, this may be Neutral for stock market as analysts see some redemptions from equity mutual funds with some of such amount may directly be invested in stock market.

Sales tax on Fertilizer products is proposed to be increased from 2% to 10%. Analysts believe that this will be Neutral to Positive for Fertilizer sector as it will result in lower piling up of sales tax receivables as they are paying 5-17% sales on input/raw material. Increase in Fertilizer product prices will easily be passed on to consumers as it is already selling at huge discount to international prices.

Tractors have been exempted from sales tax of 5% which will be slightly positive for the sector.

Government has increased taxation on immovable property which will be positive for stock market sector. It has been a long demand of stock market stakeholders to the government for provision of a level playing field for all sectors in economy where huge concessions given to other sectors should be withdrawn including the property sector.

Duty on import of Electric vehicle in CBU condition will now be reduced to zero as compared to previous duty rate of 12.5%.

Government has set an ambitious revenue target of Rs7 trillion in FY23 budget which is up 17% YoY. This is based on optimistic estimates of collection in Petroleum Levy (PDL) and Gas Infrastructure Development (GIDC). It is also interesting to note that the revenue target of Rs7 trillion is slightly lower than the numbers quoted in...