Following up on this column’s analysis on the budget’s impact on capital markets let us take a look at some other salient points. (Read: “Budget-Bane for the capital markets?,” published June 07, 2016) The withholding tax on commission of Pakistan Stock Exchange (PSX) members has also been doubled from 0.01 to 0.02 percent. This increase coupled with more stringent regulations being imposed on brokerage houses will likely put pressure on the brokerage industry.

Furthermore, the tax rate on dividends for non-filers has been increased from 17.5 to 20 percent with taxes withheld in excess of 12.5 percent to be adjusted for subsequent filers. This column reiterates its stance that non-filers include pensioners, housewives and individuals below the minimum taxable threshold who will be unfairly burdened with this increase.

The tax on bonus shares is also intact at a rate of 5 percent. According to budget proposals forwarded by PSX, the amount of any bonus declared, issued or paid by a company to its shareholders is not “income” at all but rather an accounting treatment only. A declining trend can be witnessed with respect to issuance of bonus shares after the imposition of this tax. Therefore, the government is not likely to earn any major revenue by the continued imposition of tax on bonus shares.

Then there is the increase from Rs4 million to Rs5 million in upper limit of investment for senior citizens in the Behbood scheme for national savings. Although this is favourable for the elderly group looking to earn risk free return on their retirement savings, it will provide increased competition for banks and mutual funds for their depositor base.

The super tax which was originally floated as a one year measure to increase the revenue base has also been extended for another year. The super tax imposed 4 percent on banking companies and 3 percent for other organisations with the earning mark of over Rs500 million annually. The continued imposition of the super tax coupled with all-time low interest rates paints a grim picture for the banking institutions. The measure will also probably counter any gains made under the decreased corporate tax rate of 31 percent.

A positive step taken in the budget with regards to the capital markets is the withdrawal of 16 percent Federal Excise Duty (FED) which was imposed on financial service companies, stock brokers and asset management companies. This will help to reduce the problem of double taxation as provinces also charge sales tax on services from these companies.

There has also been an increase in the 20 percent tax credit for new listings on the stock exchange for another two years which is less than the five year period proposed by the PSX. However it can be hoped this increment will encourage private companies to utilise equity markets for capital raising and aid in expansion strategies of firms looking to go public.