FED on brokerage to shrink turnover of bourses

[Naveed Yaseen]

By Salman Siddiqui
KARACHI: The imposition of 16 per cent Federal Excise Duty (FED) on services provided by stock brokers in shape of Value Added Tax (VAT) might shrink the turnover at local bourses.

Also, this tax measure, which is aimed at widening the tax net, might bring share markets under the control of bearish forces for a short time. However, the announcement of various incentives for different listed sectors is believed to take the market upwards after a brief stress.

A leading stock broker Munir Ludha is of the view that the imposition of FED would result in reducing everyday turnover to low at bourses, as many brokers would pass on this impact to their clients.

Moreover, FED implementation in letter and spirit would remain a challenge for the government, as every brokerage house (there are about 300 in the country) charges different rates from their clients. And this difference in service charges would open a new venue of challenge for the government, he explained and maintained, uniformity in service charges can help government achieve the set target of revenue collection on the head of FED.

However, confusion exists regarding old taxes i.e. CVT, WHT and PTR already charged from brokers. Whether they would be removed following imposition of 16 per cent FED or not was yet to be cleared, he added.

While presenting budget in national assembly, State Minister for Finance Hina Rabbani Khar has estimated to collect Rs16 billion in account of this 16 per cent FED imposed on stockbrokers, banks and advertisements under the ambit of services sector.

Muhammad Sohail at Topline Securities observed the impact of budgetary measures sector-wise and said that the budget would be positive for cement and auto sectors; neutral to negative for bank and insurance; and it will remain neutral for exploration sector, oil marketing companies, gas and independent power projects.

Saqib Hussain, AVP at Noman Abid & Company, said that FED on services would place market in troubled areas, as 85-88 per cent of free float market capitalisation is contributed from services sector at the Karachi bourse, while 65-70 per cent of this total 88 per cent is shared by only one single heavy weighted sector i.e. bank.

The imposition of this 16 per cent FED on banking services and services rendered by the insurance, telecom, securities companies and oil & gas exploration & production companies would strengthen bearish rule.

Khalid Iqbal Siddiqui, Head of Research at Invest & Finance Securities, observed nothing negative for market and said the impact of 16 per cent FED on brokering services was already there in the market.

The reduction of execise duty on cement, construction of dams, incentive to automobile sector, and likely continued incentives for the agriculture sector would help market reviving to positive in a short-while, he added.

Khurram Shahzad at InvestCap said that the presented budget was seemed in right direction, but its implementation would remain challenging, as government has set ambitious targets for revenue collection.

He said that the reduction in inflation should be brought about by cut in discount rate of central bank. If it happens it will be good for stocks market, he added.

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