Mini Budget – Potential Measures and Implications

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News Desk: PTI government has announced its plan to introduce a “mini budget” on Jan 23rd, 2019. Finance Minister Asad Umer has categorically stated the purpose of the budget will be to enhance ease of doing business in Pakistan. Moreover, the budget will be focused on narrowing the revenue shortfall faced by GoP. The budget will introduce measures that are aimed to raise additional revenue of PKR 150bn and narrowing the revenue shortfall of PKR 170bn during 1HFY19. The government also aims to revive export oriented industries in an attempt to stimulate the stagnant exports of Pakistan. In the table below, we highlight key measures that are expected to be undertaken and their potential impact on the relevant sectors.

Exhibit: New Measures in mini budget Measure Impact/Comment Sector Beneficiary/Loser Probability

  1. Rationalization of Capital Gains Tax in line with Real Estate. Positive: Currently Capital Gains are taxed at 15% regardless of the holding period. It is proposed that capital gains would be exempted if holding period of stocks is over 3 years. It will impact Capital Market and it’s probability is High
  2. Capital losses could be carried forward for up to 3 years. Positive: Currently investors are allowed to carry forward losses up to 1 year. Would help investors save taxes when market provides positive return. It’s sector is Capital Market, major beneficiary is Capital Market and it’s probability is High
  3. Abolition of advance tax of 0.02% on brokers. Positive: Currently advance tax is 0.02%. Low cost of doing business for brokers is expected to enhance volumes. It’s sector is Capital Market and major beneficiary is Capital Market. It’s probability is High.
  4. Increase in GST from 17% to 18%. Neutral to Negative: Increase in GST would lead towards higher inflation. It’s sector is Cement, Fertilizers, Automobile Assemblers, Steel. It’s major beneficiaries are Cement, Fertilizers, Autos, Steel and it’s probability is Low
  5. Fixation GST on petroleum products to 17%. Neutral: This will ensure continuous revenue collection of gov’t while consumer prices may only change with the movement in int’l oil prices. Current GST is 17%. It’s sector is Oil Marketing Companies and major beneficiaries are PSO, APL, HASCOL, SHEL. It’s probability is Moderate
  6. Settlement of GIDC. Positive: Reduce cost of production, Fertilizer, Cement, Chemicals, Steel and textile to benefit. This change will impact all manufacturing sectors consuming natural gas. Major beneficiaries of this change are FFC, FFBL, LUCK, DGKC, MUGHAL, ASTL, LOTCHEM, EPCL, GATM, FML, NML. It’s probability is High
  7. Increase in duty on imported paper Positive: Increase in duty for finished paper products will benefit local industry Paper & Board. Major beneficiaries are PKGS, CEPB, RPL and it’s probability is High
  8. Increase in FED on cement. Negative: Currently FED on cement is PKR 1500/ton (PKR 75/bag). Given current pricing dynamics, sector may not be able to pass on the impact to end consumers. Cements sector will get impact of this change and it’s probability is High.
  9. Decrease in age limit of imported cars (1000cc and below) to 2 years. Positive: Small car segment of local manufacturers (PSMC) will benefit amid higher prices of 2 year imported cars in Japan. Current age limit is 3 years. Automobile Assemblers sector will be impacted and major beneficiary of this change is PSMC. It’s probability is Moderate.
  10. Increase in duty on imported cars (1600cc and above). Positive: High-end car segment of local manufacturers (INDU and HCAR) would benefit. Sector of this change is Automobile Assemblers and major beneficiaries are INDU, HCAR. It’s probability is High.
  11. Increase in FED on cigarettes Neutral: Manufacturers will pass-on the impact to end consumer. It’s sector is Tobacco and PMPK, KHTC are major beneficiaries. It’s probability is High.
  12. Reduce withholding tax on banking transactions for both filers and non-filers. Positive: Moderating growth in currency in circulation, increase in banks’ deposits, increase in ancillary income and financial intermediation. It sector is Banking and whole Banking Sector will benefit from this change. It’s probability is Moderate.
  13. Reduction in duties on imported raw materials for textiles. Positive: Reduce cost of production, value added textile sector to benefit the most. Major beneficiaries are NML, NCL, FML, GATM, KTML, ANL. It’s probability is High.
  14. Additional 1% Custom Duty on Imported Products. Positive: Increase competitiveness of local products, import substitution companies will benefit the most. It’s sectors are Chemicals, Automobiles, Steel, & Tiles and major beneficiaries are companies of Chemicals, Automobiles, Steel, & Tiles. It’s probability is High.
  15. Introduction of Sales tax of 17% on Cellular Companies. Negative: Currently there are no taxes on prepaid cards, this will be negative for Cellular companies. Telecom Sector specially PTCL (Ufone) will get impact and it’s probability is High

Conclusion: We believe the impact of this budget would be positive for the market sentiment as anticipated demands from stock market brokers are expected to be met. Moreover, major sectors of the market are also expected to benefit from these steps.
Mini Budget Economy Potential Measures and Implications

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