June 08, 2022 (MLN): To maximize the potential of the Pakistan Stock Exchange (PSX) by increasing the investor base, and improving market momentum, the government must provide a level playing field against other asset classes such as real estate, etc, Farrukh H Khan, Managing Director PSX said while speaking to Mettis Global.

“PSX is not asking for any subsidy or removal of existing taxes in the upcoming budget of the fiscal year 2022-23. The sector is only asking for equality in terms of tax treatment,” he underlined.

Despite being the most productive and documented sector, the capital market is suffering from significant discrimination compared to other sectors pertaining to CGT, KYC, tax, and AML, he added.

Emphasizing the need of streamlining these distortions, he indicated that efficient resource allocation is being badly affected which requires immediate attention.

Once the required reforms will be implemented, all assets classes will get equal tax treatment which would ultimately increase the government revenue. This would also help to document the undocumented sector of the economy, he added.

As the time of budget FY23 announcement is getting closer, the investors at the Pakistan Stock Exchange (PSX) raising their concerns regarding the burden of taxes. Safe to say that the capital market has succumbed to spine-chilling fear as the government would likely follow the IMF instructed roadmap for fiscal consolidation.

“In order to remove constant uncertainty from the market, the government should clearly reveal their full fledge economic plans and strategic moves that are going to be implemented,” he emphasized.

On the IMF front, he said that authorities must share every detail pertaining to the talks with IMF and possible tranche.

Earlier, PSX submitted a few proposals for budget FY23 to the federal government for consideration wherein the top recommendation was aligning rates of capital gains tax (CGT) on disposal of securities with other regional exchanges and OECD countries and with the rates of CGT on sale of immovable property.

The analyst fraternity has also raised the same concern pertaining to unequal tax treatment.

Fahad Rauf, Head of Research at Ismail Iqbal Securities told Mettis Global, “The capital market is not at a level playing field with other sectors like real estate.”

“Taxing already taxed has remained the problem which causes an imbalance in the economy in favor of undocumented sectors,” he added.

With regard to the expected outlook, Arsalan Siddique, Head of Research at Optimus Capital said that despite having an attractive valuation, the equity market will be tested by political uncertainty, deteriorating macro indicators, elevated fixed income yields, and FY23 budgetary measures.

He further stated, “Early election will bring certainty in an overall environment that will bode well for the market. However, the low valuation may still be an attractive theme for long-term value buyers.”

Being one of the most documented sectors of the economy, it is imperative for sustainable economic growth to create a conducive environment for PSX which will help to attract more listings/companies and investors to the capital market.

Not to forget that over the decades, the government has been the biggest beneficiary from this documented sector since every investor is properly documented.

In the wake of alarming depletion of foreign exchange reserves, the government’s struggle to comply with IMF’s conditionalities to unlock the next tranche, and commodity headwinds that are adding fuel to the fire, investors are eying the upcoming budget for the fiscal year 2023.

The local bourse is looking forward to the government’s support to remove impediments and disincentives that are negatively impacting the development of the capital market, as well as the documented corporate sector.

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