Tax reform budget, but no respite in deficits

Penned by: Muzzammil Aslam

The budget is technically expansionary compared to previous budgets. The deficit is projected at 7.1% of GDP.

Government is expected to spend over Rs2,800 Billion in debt servicing and transfer of Rs3,200bn plus to provinces.

The taxes are likely to recover from tax exemptions from previous years, some revival in salary taxation, mobile cards and higher FED on products.

As highlighted month ago there were 4 unknowns (including devaluation, Policy Rate, FATF & Budget) and with the presentation of budget, all unknown are known now. This means uncertainty is behind us.

Despite tax loaded budget, and obviously some sectors will be affected, we believe, the impact on stock market by and large lower than the initially anticipated. No imposition of further GST, keeping intact the corporate taxes and super taxes are all positives.

Market has priced in aggressive tax measures compared to actual budget. Therefore, in my view, market will enter into the phase of certainty. Higher tax on fixed income will lure investors towards equities.

Now what to watch?
1) opposition move against budget,
2) lawyers movement,
3) IMF Executive Board approval
 

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The opinions in this article are the author’s and do not necessarily represent the views of Mettis Link News (MLN).

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