LAHORE  - The equity market has proposed to reduce corporate tax rates for listed companies to 25 per cent while a gradual reduction of corporate tax is proposed by the Securities and Eexchange Comission of Pakistan (SECP) in the upcoming Federal Budget 2013-14, due on Wednesday (tomorrow), which is likely to be manifestation of new government vision of fiscal responsibilities by increasing tax revenues, and limiting non-developmental expenditures and instituting structural reforms. Major theme would be to address rampant energy crisis while populous measures may include announcement of major infrastructure projects, experts said.

Other proposals like compulsory cash payout and penalizing companies who do not meet a certain threshold for cash payout have also been forwarded. It is proposed by the Karachi Stock Exchange to extend tax rebate of 15 per cent on corporate tax rate on new listings from existing one year to five years. Karachi Stock Exchange has also proposed that 10 per cent tax on dividends to be withdrawn as it is double taxation while some experts believe the imposition of 35 per cent taxation on inter-corporate dividend income.

Karachi Stock Exchange’s proposals regarding reduction in corporate tax rate, making cash payout mandatory and others are not likely to be accepted, experts from Topline securities believe. Furthermore, they feel 10 per cent tax on dividends will be maintained and for 35 per cent taxation on inter-corporate dividend income, though they do not see thing happening, but if imposed, it will be negative for major corporates like Nishat group and Attock group.

Going forward, they feel local bourse’s movement will depend on the revival of economic activities that have been hampered for quite sometime. In the past 5 years Pakistan market traded at an average PE of 6.9x. However, with new business friendly government in power, market has the potential to re-rate back to its long term average PE of 8.4x. Experts think effective measures to revive economy can help to sustain this re-rating.

Post elections, foreign inflows to Pakistani market have improved and have reached US$271mn (in May, 2013) as against US$380mn to date in current calendar year. Yield of Pakistan Eurobond also came down 350-400bps from recent high, suggesting confidence building in the new setup.