EUR 8.14 For Business Accounts Only

Pakistan Market: Tax Package can rerate KSE-100 to 48,000pts

• The GoP has announced a comprehensive tax package entailing (i) wealth declaration - both locally & from abroad, (ii) reducing the gap between official and market value of properties and (iii) rationalization of tax brackets for the salaried class. The package will likely be cheered by the market and lead to a round of rerating - if estimated forward P/E of 9.6x rerates to 10x, it could lead to an Index level of 48,000 pts. 
• Using Indonesia’s amnesty scheme as an example, and applying a 25-50% haircut by way of prudence, we estimate this could generate approximately US$2-3bn from abroad, comprised of US$0.5-1.0bn in tax receipts for the GoP and US$1.5-2.0bn in foreign funds repatriation. This will be in addition to funds generated locally.
• If the package is successful, we see positive implications for (i) Pakistan’s FX reserves and consequently the PKR, (ii) Tax-to-GDP ratio currently estimated at c.12%, (iii) disposable incomes of salaried class (+ve for consumer discretionary sectors) and (iv) the stock market which could potentially see a liquidity infusion. That said, it remains to be seen if this tax package or some components of it are challenged in the courts.