The PML-N led government unveiled their fourth

budget on June 3, 2016 centered on the revival

of (1) the agriculture and the exports sectors and
(2) growth.
The industrial sector has also been provided
extension in tax credits for Greenfield Industrial
Undertakings, BMRs, establishment of new
industry and expansion of existing plants.
The total outlay of the budget has been set at
Rs4,895bn (9% YoY higher), with total
resource mobilization of Rs4,442bn (4% YoY
higher).
The government has set a GDP growth
target of 5.7% for FY17 compared to 4.7%
achieved in FY16. We believe the growth target
set is ambitious and we expect GDP growth to
clock in at 5.2% in FY17.
Government is expecting to close FY16 with a
fiscal deficit of 4.3%, and has set a target of
3.8% for FY17.
The massive share of deficit is estimated to
be financed through internal resources
(banking 46% and non-banking 54%). In
debt servicing ~92% is for domestic debt while ~8% beingallocated to external
debt servicing.

The government has estimated an overall

expenditure target of Rs4,895bn, out of which
current expenditure and development
expenditure targets have been set at
Rs3,844bn and Rs1,051bn, respectively.
Current expenditure is expected to account for
78.5% of the overall expenditures whereas
development expenditure share has been set
at 21.5%.

Capital Gains Tax and Tax on

Dividends: In the budget, government has
hiked Capital Gains Tax (CGT) rate on traded
securities for non-filers (see table below), while
also increased Tax on Dividend for non-filers
from 17.5% to 20.0%. The taxable period for
CGT, however, has been extended from four
years to five years.
WHT on stock brokers increased to 0.02%
from 0.01%.
Removal of exemption on inter-corporate
dividends for companies availing group relief: This measure is likely to be negative for
holding companies benefiting from tax losses from their subsidiaries (not wholly owned), like
Engro Corporation (ENGRO) and Dawood Hercules (DAWH).
To broaden capital market breadth: Tax Credit for Enlistment has been extended to two
years from one year. It is also proposed to reduce the condition of 100% fresh equity to at
least 70% equity, for availing tax credit on establishing new industry through issuance of
new shares.
Reduction in corporate rate tax to 31% from 32%: As expected the tax rate has been
proposed to be reduced to 31% from 32%, which is likely to have a positive impact of 1-2%
on JS Universe (already incorporated).

Banks 4% Super Tax is likely to have an impact of 6-10%. WHT on non-filers has been
maintained at 0.6%.

It has been clarified that WHT on cash withdrawal would be on aggregate

basis from all bank accounts of the accountholder within a single day.

INCOME TAX: Reduction in corporate tax rate, the rate has been reduced to 31% for Tax
Year 2017.
Extension in exemption to export of IT services till June, 2019.
Enhancing limit of interest on House Building Loan, amount is being increased from PKR 1mn
to 2mn.
Relief on Education Expenses: Individual having taxable income less than PKR1mn is being
given tax relief equal to 5% of school fee up to PKR 60,000 per child per annum

Cements In the Budget FY17, the govt. has proposed to increase the rate of FED from
current 5% of MRP (Excluding GST) to a fixed Re1/kg. Current FED rate translates into
~Re0.42/kg (assuming average MRP of Rs495/bag).

Custom Duty on import of clinker has been increased to 11% from 2%. While being
considered a positive development overall, we believe that this will not result into any
material positive for the industry as clinker imports remain minimal in the country.

Automobiles Assemblers Government has proposed an advance tax of 3% on value of

motor vehicles for non-filers, which will be collected when the vehicle is leased. This could
potentially put a dent on the auto financing sales, which have recently been providing a
major chunk of volumetric growth for the sector (35-40% of sector volumes attributed to
auto financing sales, as per industry experts).
Super Tax of 3% will be charged on Automobile sector, which is expected to hurt sectors
earnings by 4-6%.

Textiles Export refinance rate reduced to 3%, which will further add stimulus to sector
sales .Extension in exemption of customs duty on the import of machinery .
Minimum wage has been increased from Rs13,000 to Rs14,000, which is somewhat negative
for textiles through increased labor costs, particularly for the labor intensive garment
manufacturing segment.

Food Producers & Beverages In order for EFOODS to maintain margins, our calculations
suggest a price increase of Rs6-7/ltr. We flag the company has already increased milk prices
by Rs5/ltr just before the budget (covering ~80% of the required increase).
Regulatory duty on import of powdered milk may increase by 25%. We believe this would be
in addition to 20% custom duty that exists on local milk manufacturers. EFOODS may bear a
neutral impact of the additional duty if a ~Rs2/ltr increase on its products is passed on to
the consumer.
FED on locally produced aerated water to be increased to 11.5% from 10.5% previously
(impact on MUREB)

Insurance Tax credit for investment in health insurance has been introduced up to
Rs100,000 or 5% of income whichever is lower, which is a positive for the sector.
Advance tax has been introduced at 4% for general insurance and at 1% on life insurance on
insurance premium (if exceeding Rs200,000/annum).