LAHORE  -   The government is planning to standardize sales tax on petroleum products likely at 17 percent. Among other measures, hike in Federal Excise Duties (FED) on cements, beverages, cigarettes, and vehicles (1600cc and above) are also on cards. Experts think these revenue measures would dent profitability of cement and consumer sectors mainly due to inability to pass on this burden to customers in the short run and owing to tough competition in consumer industry.

However, rumors related to increase in General Sales Tax (GST) are also doing rounds.

Experts said that with a view to overcome revenue shortfall and bolster exports, the govt is mulling to announce a mini budget on January 23, 2018 with additional revenue measures of up to Rs150b.

To note, in 1HFY19, revenue shortfall of Federal Board of Revenue (FBR) has touched Rs170b as estimates suggests that, hike in interest rates by 425bps during 2018 and rupee devaluation of 24 percent since Dec 2017 have cumulatively increased annual debt servicing requirement of govt by Rs700-800 billion.

Topline Security analysts observed in a report that among relief measures, in order to increase exports, the govt is expected to reduce duties on imported raw material of export oriented sectors, where textile sector could stand out as winner. Secondly, the govt is expected to rationalize taxation of holding companies on inter-corporate dividend, which will be positive for Holding companies like ENGRO, INIL, KTML, LUCK etc. Lastly, reduction/elimination of advance tax of 0.2 percent on brokers will lead to better cash flows for equity brokerage industry.

Moreover, Finance Minister Asad Umar in a press brief over the weekend said that the upcoming budget will focus on ensuring ease of doing business and incentivizing savings.

Given continued concerns on expanding fiscal deficit, announcement of additional revenue measures in next week’s mini budget will be a positive development. Clarity on International Monetary Fund (IMF) program will remain pivotal for market direction during the short to medium term.