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Author: Faisal Shahnawaz

  • Equity market gains 319 points on policy rate cut hope

    Equity market gains 319 points on policy rate cut hope

    KARACHI: The equity market recorded increase of 319 points on Tuesday on expectation of cut in policy rate to be announced this week.

    The Index closed at 33,603 points as against 33,284 points showing an increase of 319 points.

    Analysts at Arif Habib Limited said that the market went positive on the prospect of rate cut for which the State Bank of Pakistan (SBP) will be taking decision by end of week, besides the government’s stance on construction of Dams that is likely to generate demand for Cement and Steel.

    Resultantly, Cement and Steel sectors ruled the index, mostly trading near upper circuits and generating high trading volumes. Banking and Oil & Gas sector stocks couldn’t generate much interest amongst investors.

    Cement sector topped the index with 75.8 million shares, followed by Technology (28.6 million) and Vanaspati (23.1 million). Among scrips, MLCF realized trading volumes of 28.4 million shares, followed by UNITY (23.1 million) and FCCL (19.1 million).

    Sectors contributing to the performance include Cement (+150 points), Banks (+67 points), Fertilizer (+62 points), E&P (+28 points), Power (+24 points) and O&GMCs (-16 points).

    Volumes increased further from 198.2 million shares to 224.5 million shares (+13 percent DoD). Average traded value also increased by 68 percent to reach US$ 45.9 million as against US$ 27.4 million.

    Stocks that contributed significantly to the volumes include MLCF, UNITY, FCCL, WTL and HASCOL, which formed 42 percent of total volumes.

    Stocks that contributed positively to the index include LUCK (+50 points), ENGRO (+31 points), HBL (+29 points), MCB (+28 points) and DGKC (+26 points).

    Stocks that contributed negatively include SNGP (-20 points), BAHL (-9 points), PMPK (-8 points), DAWH (-7 points), and AICL (-6 points).

  • Rupee falls by 38 paisas against dollar

    Rupee falls by 38 paisas against dollar

    KARACHI: The Pak Rupee fell by 38 paisas against dollar on Tuesday owing to reports the government is going to hedge oil.

    The rupee ended Rs160.46 to the dollar from previous day’s closing of Rs160.08 in interbank foreign exchange market.

    Currency experts said that the rupee was witnessing deterioration in its values against dollar as the government was mulling to hedge oil to get benefit of lower prices in international market.

    The experts said that the lower import bill however support the local currency to gain values.

    The trade deficit shrank by 25.68 percent to $19.49 billion during July – April 2019/2020 as compared with the deficit of $26.23 billion in the same period of the last fiscal year.

    The exports in first ten months (July – April) 2019/2020 also fell by four percent to $18.41 billion as compared with $19.16 billion in the corresponding period of the last fiscal year.

  • SBP further relaxes refinance scheme to prevent major layoffs

    SBP further relaxes refinance scheme to prevent major layoffs

    KARACHI: State Bank of Pakistan (SBP) relaxes refinance scheme to prevent large scale layoff of workers due to adverse effects on the economy due to coronavirus.

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  • Stock market trades in narrow range

    Stock market trades in narrow range

    KARACHI: The stock market gained 16 points on Monday while trading in narrow range.

    The benchmark KSE-100 index of Pakistan Stock Exchange (PSX) closed at 33,284 points as against 33,268 points showing an increase of 16 points.

    Market traded in a narrow range between +48 points and -142 points, closing the session +16 points. Banking sector traded in the negative zone, and similar activity was observed in Cement and E&P.

    All eyes are set on MSCI rebalancing and Monetary Policy rate cut, of which MSCI is scheduled to announce decision on May 12, whereas SBP is also expected to take the decision on Policy rate during the ongoing week. Side board scrips came in the limelight today and contributed to the volumes, including WTL, HUMNL, UNITY and TRG.

    Pharma stocks, FEROZ and SEARL also reacted to possible non-exclusive engagement with Gilead for manufacturing Coronavirus drug Remdesivir and performed well on the bourse.

    Technology stocks contributed 94.2 million shares to the index, followed by O&GMCs (16.5 million) and Vanaspati (15.1 million). Among scrips, WTL topped with 62.4 million shares, followed by TRG (15.8 million) and UNITY (15.1 million).

    Sectors contributing to the performance include Pharma (+23 points), Technology (+12 points), Insurance (+8 points), Power (-10 points) and E&P (-10 points).

    Volumes increased from 88 million shares to 198.2 million shares (+125 percent DoD). Average traded value also increased by 15 percent to reach US$ 27.4 million as against US$ 23.9 million.

    Stocks that contributed significantly to the volumes include WTL, TRG, UNITY, HASCOL and HUMNL, which formed 56 percent of total volumes.

    Stocks that contributed positively to the index include SEARL (+12 points), SNGP (+10 points), TRG (+7 points), AICL (+6 points) and GLAXO (+6 points). Stocks that contributed negatively include HUBC (-12 points), PPL (-7 points), HBL (-4 points), PSO (-4 points), and OGDC (-4 points).

  • Rupee falls by 10 paisas against dollar

    Rupee falls by 10 paisas against dollar

    KARACHI: The Pak Rupee fell by 10 paisas against dollar Monday amid higher demand import payment, dealers said.

    The rupee ended Rs160.07 to the dollar from last Friday’s closing of Rs159.97 in interbank foreign exchange market.

    Currency analysts said that the market opened after weekly holiday which increased the demand for import payment.

    They said that the rupee also improved with shrinking trade deficit.

    The trade deficit shrank by 25.68 percent to $19.49 billion during July – April 2019/2020 as compared with the deficit of $26.23 billion in the same period of the last fiscal year.

    The exports in first ten months (July – April) 2019/2020 also fell by four percent to $18.41 billion as compared with $19.16 billion in the corresponding period of the last fiscal year.

  • FBR proposed to eliminate distortion in withholding tax on dividends from equity investments

    FBR proposed to eliminate distortion in withholding tax on dividends from equity investments

    KARACHI: Federal Board of Revenue (FBR) has been proposed to rationalize of withholding tax on dividends as higher rate from equity investments discourage investment in the capital market.

    Pakistan Stock Exchange (PSX) in its proposals for budget 2020/2021 submitted to Federal Board of Revenue (FBR) said that withholding tax on profit from debt instruments is currently charged a lower rate compared to the withholding tax charged on dividend from equity investments.

    The difference ranges between 2.5 percent – 5 percent. This reduces the incentive to invest in the equity market.

    Tax treatment on various asset classes should not be the primary driver of investment decisions, the PSX said, adding that the profit on debt and dividends should receive the same tax treatment.

    At present, it is observed that corporate profits are first taxed at company level, and subsequently, the resulting profits which are distributed as dividends are taxed at the individual level.

    This is essentially a form of double taxation, and result in the misallocation of capital in an economy by giving an upper hand to fixed income investments.

    To remove this discrepancy, the government should introduce a mechanism to eliminate the distortion on the tax charged on dividends, and make the effective tax rate equal to that on debt.

    Tax rate on investmentsProfit paid is more than rupees five hundred thousandProfit paid is rupees five hundred thousand or less
    Profit on Debt u/s 15115 percent10 percent
    Sukuk-holder (individual or an association of person), if the return on investment is more than one million U/S 150A12.5 percent
    Sukuk-holder (individual and an association of person), if the return on investment is less than one million U/S 150A10 percent
    Dividend U/S 150 & 236S15 percent

    The PSX submitted following proposals:

    i. Government should introduce a mechanism to remove the double taxation of company’s profits – once in the hands of the company, and once in the hands of shareholders as dividends – such that the effective tax rate on dividends is on par with profit on debt.

    ii. Rationalize the current tax rate on dividends to make it equal to the tax rate on profit from debt.

    Provided that there should be no withholding tax on dividend up to Rs100,000 per annum.

    Giving rationale to the proposals, the PSX said that a similar tax treatment on dividend from equity investment and debt instrument will provide a level playing field to equities and attract higher inflows in the stock market. Further, it would lead to increase in numbers of UINs.

    The PSX proposed following proviso should be inserted in section 150 and Section 236S to the Income Tax Ordinance, 2001:

    “Provided that there should be no withholding of tax where amount does not exceed Rs100,000 per annum.”

    Clause (b) Division-I, Part III, First Schedule to the Income Tax Ordinance, 2001, for the word ’15 percent’ shall be substituted by ’10 percent.’

  • PSX proposes reduction of withholding tax on margin financing transactions

    PSX proposes reduction of withholding tax on margin financing transactions

    KARACHI: Pakistan Stock Exchange (PSX) has proposed to reduce the rate of withholding tax in the gross income earned on margin financing transactions to 2.5 percent from existing 10 percent.

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  • Exemption on agriculture income should be withdrawn

    Exemption on agriculture income should be withdrawn

    KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has suggested that exemption on agriculture income should be withdrawn and bring all income into tax net.

    The OICCI in its proposals for budget 2020/2021, recommended withdrawal of exemption of agriculture income and also proposed amending Section 41 of Income Tax Ordinance, 2001.

    The OICCI said that the GDP includes some sectors which are exempt from income tax. The biggest exempted sector is agriculture which does not make any contribution to the national exchequer, despite the fact that over 65 percent of Pakistan’s population is directly or indirectly linked with the agricultural sector.

    The original rationale of keeping agriculture out of tax net was to facilitate the small agriculturists.

    However due to non-implementation of land reforms the benefit of the tax exemption is being availed by big landowners earning huge incomes.

    Unscrupulous elements also transfer their income and wealth to businesses fronting as agriculture sector.
    The OICCI recommended:

    i. Exemption given to agriculture income should be withdrawn and agriculturists should file income tax returns and wealth statements.

    ii. Suitable provisions should be incorporated in Income Tax Ordinance 2001 to enable tax authorities to implement the requirement of filing of income tax returns and wealth statements, effectively.

    iii. All incomes should be taxed and as a general rule exemptions be given only for attracting FDI and for under privileged and poor sections of society or, in exceptional circumstances, as motivation to encourage the registration of individuals and all legal entities.

  • Various tax laws discouraging investment: PBC

    Various tax laws discouraging investment: PBC

    KARACHI: Pakistan Business Council (PBC) has detected that various tax laws are discouraging investment in the country. The council recommended measures for promoting industrialization, growth and job creation.

    The PBC in proposals for budget 2020/2021 said that at present, new local/foreign investors are reluctant to invest in manufacturing industry of Pakistan due to various impediments including collection of sales tax (10 percent upfront plus 3 percent minimum value addition plus 7 percent Postdated cheques) and income tax 5.5 percent at import of plant and machinery/ spare parts in addition to various other taxes and levies thereafter.

    The PBC proposed new entry number 1(viii) be inserted in column number 2 of the Table specifying rate of tax at import stage as given in Part-II of the 1st Schedule to the Income Tax Ordinance, 2001 as follows:

    “(viii) industrial undertakings importing Plant and Machinery and spare parts”

    The PBC further said that the current rate of minimum tax is 1.5 percent, this tax on turnover is impacting the sustainability of industries especially in the light of current crises.

    The provision under which the minimum turnover tax is charged, both for manufacturing and services sectors should be suspended for at least the next two financial years.

    As income of SEZ entity (Zone Enterprise or operator) is exempt from income tax for a period of 10 years, there should not be any withholding of Income tax at source at any stage for Zone Enterprises and under any provisions of ITO till such time exemption is available to the Zone Enterprise.

    However currently exemption is not granted under Income Tax Ordinance, 2001 Section 113, 147, 148, 153, 236K, 236W etc., from collection of income tax.

    Since income of Zone enterprise is exempt from income tax under clause 126E, it is proposed that exemption be granted to Zone enterprises and operators from all withholding and tax collection provisions as these will lead to refunds.

    The PBC recommended necessary insertion be made in clause 11A of Part IV of the Fourth schedule to the Income Tax Ordinance to exempt Zone operator and Entity from minimum tax under section 113.

    Import of raw material by Export Oriented sector is subject to income tax withholding of 1 percent whereas on the other hand, import of Plant & Machinery by these sectors is subject to 5.5 percent income tax withholding.

    Entry no. 1(iv) in column number 2 of the Table specifying rate of tax at import stage as given in Part-II of the 1st Schedule to the Income Tax Ordinance, 2001 be amended as follows:

    “Manufacturers covered under Notification No. S.R.O. 1125(I)/2011 dated the 31st December, 2011 and importing items covered under S.R.O. 1125(I)/2011 dated the 31st December, 2011, Plant & Machinery and Spare parts;”

    Greenfield Industries –

    Through the Tax Laws (Second Amendment) Ordinance, 2019, the term Greenfield industries has been defined in the Income Tax and Sales Tax laws to make it identical to “Pioneer Industry”.

    Therefore it is recommended: “Delete condition no. “(iv)” of the definition of Greenfield industry to make it distinct from Pioneer industry, otherwise the purpose of growth through investment would not be achieved.”

  • Weekly Review: market likely remain range bound

    Weekly Review: market likely remain range bound

    KARACHI: The stock market likely to stay range bound in coming week owing to ease in lockdown.

    Analysts at Arif Habib Limited said that the market to remain range bound in the coming week.

    With standard operating procedures in place, lockdown will be easing off next week, business community and economy will get a sigh of relief.

    Whereas, given foreign reserves clocking-in at USD 18.8 billion, up by USD 292 million WoW, Pak Rupee is expected to remain stable against the greenback (which is a major positive for foreign investment).

    The benchmark KSE-100 index of Pakistan Stock Exchange (PSX) is currently trading at a PER of 7.0x (2020) compared to Asia Pac regional average of 10.2x and while offering DY of ~8.4 percent versus ~3.1 percent offered by the region.

    Market commenced on a negative note this week, with investors resorting to profit taking.

    With a massive fall in exports by 54 percent YoY in last month followed by a fall in cement dispatches by 24 percent YoY in April 2020 amid lockdown weak sentiment prevailed.

    Furthermore, IMF’s prediction regarding total foreign reserves depletion by USD 1.9 billion in the coming 15 months added fuel to this decline.

    Moreover, 12 month T Bill cut off yield climbed up by 28 basis points. Meanwhile, Federal Govt.’s decision to ease off lockdown from Saturday and onwards was not received well given alarming jump in COVID-19 cases on day-on-day basis.

    Whereas, announcement of reduction in RLNG prices for the month of May 2020 cushioned the dip.

    The KSE-100 index settled at 33,268 points, shedding 884 points (down by 2.5 percent) WoW.

    Sector-wise negative contributions came from i) Commercial Banks (231 points), ii) Cement (211 points), iii) Power Generation & Distribution (156 points), iv) Fertilizer (148 points) and Oil & Gas Exploration Companies (99 points).

    Meanwhile, sector-wise positive contribution came from i) Oil and Gas Marketing Companies (76 points), Food & Personal Care Products (34 points) and Technology & Communication (21 points). Scrip-wise negative contributions were led by HUBC (126 points), LUCK (102 points), HBL (82 points), FFC (76 points) and MCB (74 points).

    Foreign selling continued this week clocking-in at USD 17.8 million compared to a net sell of USD 11.6 million last week.

    Selling was witnessed in Exploration & Production (USD 7.1 million) and Commercial Banks (USD 5.1 million).

    On the domestic front, major buying was reported by Individuals (USD 20.3 million) and Companies (USD 5.7 million).

    Average Volumes settled at 190 million shares (up by 7 percent WoW) while average value traded clocked-in at USD 46 million (down by 5 percent WoW).