Pakistan tax changes – Another positive
In our year-end report, Asianomics Group Strategy Report No. 12/2017, The Jinping Plan, 1 December, we wrote that the prospective major beneficiary of China’s Belt and Road Initiative was Pakistan. The port of Gwadar is seen as a critical link between Middle East oil and gas and western China. We also noted at the time that Pakistan had experienced a rough ride on entering the emerging market index last June, losing 25% since its May peak. That seemed overdone to us but then again political scandals had helped undermine sentiment as is so often the case there. In January we published Asianomics Country Report No 1/2018, Pakistan: Changed Fortunes, 17 January, in which Sharmila made the case for an overweight in Pakistan equities based on decent economic fundamentals.With a General Election just a few months away those fundamentals have just taken a major turn for the better. Pakistan has announced a tax amnesty in a move to encourage funds back onshore and to push companies and individuals into the formal economy. Moreover, it is cutting its top rate of income tax from 30% to 15% (in line with Hong Kong). It will still be a ‘progressive’ tax system with the bottom rate kicking in at 5% for income of over US$4,300/annum. The tax moves are also linked to an automated tax system based on citizens’ identity cards, thus reducing tax avoidance and bolstering fiscal revenues.
The Karachi stock market is up 10% so far this year...
Asianomics, founded by Dr Jim Walker in 2007 and based in Hong Kong, specialises in economic analysis research, cross-referencing their work with credit cycles, profit cycles and cash flows. Asianomics focus is on developments in the Asia-Pacific region, and they also cover developed markets like the US and Europe.
The Austrian Economics model provides a framework for the economic research. The basis of the School of Austrian Economics is that economies work more efficiently and effectively when companies and individuals are free from excessive interference by government and special interest groups. The Asianomics economic research team includes Deputy Chief Economist Sharmila Whelan who is recognised for non-consensus thinking and her depth and quality of primary research, and Chief Economist Dr. Jim Walker.
Asianomics’ subscribers have access to regular economic commentary, stand-alone Country Reports, Special Reports and Investment Strategy Reports. Dr. Jim Walker also provides weekly webcasts.
Dr. Jim Walker is regarded as one of Asia’s leading economists. Prior to setting up Asianomics, he was the Chief Economist at CLSA Asia-Pacific Markets, where he worked for more than 16 years. He has achieved numerous ‘Best Economist’ rankings in the Asiamoney, Institutional Investor and Greenwich surveys of fund managers.
Previous successful calls include:
- In 1995 Dr. Jim Walker wrote about the prospect of Asia being forced off its de facto dollar peg “within the next two-three years”. The Asian Crisis, precipitated by the Thai baht devaluation, began in July 1997.
- Forecasted the US 2007 downturn and financial sector meltdown in series of ‘Apocalypse’ reports.
- Called early the upswing in the Indian stock market in the final quarter of 2013.
Recent Recommendations:
- Overweight China - We are overweight Chinese equities with momentum improvement in the economy.
- Short Sterling, Long Renminbi - China’s currency offers good upside with a positive carry.
- Short European Financials, Long Indian Financials - This is the simplest pair trade to play superior demographics and growth in Asia relative to the region with the biggest problems.
- Long EM Asia, Short Developed countries - South and SE Asia, and direct investors from North Asia, are ‘buy and hold’ investment bets.
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