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Contrary to expectations of change in the treatment of income from capital gain and dividends to normal tax, affecting net returns of the investors, Topline Securities believes the budget FY25 is overall positive for the market as the Government of Pakistan (GoP) has not changed the treatment of CGT to normal tax. Alongside this, the maximum rate of 15% tax on CGT has also remained unchanged (though removed slab benefits on holding for more than a year on the purchase after Jul 01, 2024) for tax filers and tax on dividends has also remained unchanged at 15%. To note, in anticipation of the above measures, the market lost 4% or 3,186 points in the last 12 sessions.

The brokerage house believes this budget will serve as a prior action for the new IMF programme and based on the May 2024 publication of IMF, tax revenues, primary surplus, and current account deficit targets look manageable.

The brokerage house also believes, that revenue measures, taken in this budget to achieve desired tax revenue and primary surplus targets, are quite realistic and this will pave the way for Pakistan to enter into a new IMF program by getting a Staff Level Agreement (SLA) done in the start of Jul 2024.

Successful passing of this budget in compliance with IMF targets, will serve as a major catalyst to PE rerating. Topline had previously highlighted this in its mid-year strategy report dated May 11, 2024, titled Index to reach 87,000 by December 2024, 106,000 by June 2025 – PE to revert to its mean in 3 years, “that current PE of 3.7x will linearly revert to its historical average of 6.93x over next 3 years of IMF programme (July 2024 -July 2027), subject to the successful implementation of the programme and its conditionalities with respect to fiscal/monetary discipline and structural reforms”.

Mentioned below are the comments on measures which were either expected by the market or the GoP announced in actuality:

CGT tax: 

The government has removed slab-wise benefit on Capital Gain Tax (CGT) for holding securities for more than a year on purchase after Jul 01, 2024. However, the top slab rate is unchanged at 15% for tax filers, while for non-tax filers, the rate has increased from 30% to 45%. Topline believes this is positive for the market as it was a rumor in the market that, the government is mulling to change the treatment of CGT from full and final tax to normal tax. While in actual, there is no change in the treatment of CGT this will remain as full and final.

Dividend tax: 

There is no change proposed in tax rates for dividends income for both filers and non-filers. This is positive for the market as there were some news reports suggesting a tax on dividend income will go up. Also, there were speculations about the change in the treatment of dividend income to normal income. The status quo on this is positive for the market.


There is no change in bonus tax. This will be neutral to positive for the market.

Minimum turnover tax:

Minimum turnover tax has remained unchanged contrary to general expectations of an increase in this rate. This will be positive for low-margin businesses like OMCs, chemicals and steels etc.

Change in the tax regime for exporters: 

The GoP has changed the full and final tax of 1% of turnover on export-based industry to normal tax. Now exporters like textiles, and rice etc. will normal corporate tax of 29% + applicable super tax. The charge of 1% tax would now be minimum, in line with other industries.  This will be negative for export-oriented sectors like IT companies, textiles and rice. The top line is unclear whether this will be imposed on IT companies or not.

Gradual removal of sales tax exemptions: 

Industries (Steel, Ghee etc) operating in FATA/PATA were exempt from taxes, the GoP has removed sales tax exemption on industries in FATA/PATA in a phased manner. However, the exemptions with respect to income and withholding tax are extended for one more year. This was a long-standing demand for steel, and ghee players as products were dumped from FATA to other cities of Pakistan, especially in Punjab.

Withdrawal of exemptions: 

The GoP has withdrawn various exemptions/zero ratings and reduced/fixed rates on products. This was widely reported in the media and the government has implemented this measure, this will be neutral to negative for the market.

Increase in FED on tobacco: 

Contrary to expectations, the government has made a favorable shift in tax slabs for locally manufactured cigarettes. Earlier PKR16,500 tax was applicable per thousand cigarettes exceeding PKR9,000 printed retail price, however, this will be now applicable on the printed retail price of PKR12,500. While cigarettes lower than the printed price of PKR9,000 were subject to PKR5,050 FED, this will be now applicable on printed prices lower than PKR12,500.

Uniform tax rate on cell phones:

Earlier cell phones in the range of US$30-200 were subject to sales tax of PKR130-1680 (less than 3%), now these will be taxed at 18%. Prices of cell phones below US$200 (PKR57,000) will likely increase by up to PKR9,000. This will be neutral for mobile manufacturers and distributors like Airlink as an increase in GST is a pass-through item, while the tax rate on phones between US$200-500 will remain the same.

Increase in GST on POS retailers: 

This was a widely expected measure. This will be neutral for listed textile companies as an increase in GST will be passed on to consumers.