KARACHI - The Capital Gains Tax is expected to be imposed in FY09 budget. This may reduce liquidity from the stock market as turnovers would shrink and lesser interest from investors due to low effective gain from investment. However, the mechanism suggested by the SECP in which 10 percent tax on 0-3 months holding, 5 percent tax on 3-6 months holding and 0 percent tax on holding longer than 6 months would encourage long term investment. On the other hand, the proposed removal of CVT would act as a catalyst to improve liquidity and turnover in the market, Samiullah Tariq research head of InvestCap said. "The domestic demand and the disposable incomes are already facing pressure due to inflation and monetary tightening. Therefore, I don't expect any increase in corporate tax rate", Tariq added. The budget FY09 is expected to be announced on June 7, 2008. The equity market is already jittery regarding the budget as well as the macroeconomic situation. The KSE100 has lost 22% since touching the high of 15,676points on April 18, 2008. However, the behavior of KSE100 is similar to the regional markets. National Saving Schemes (NSS) rates are expected to be increased in line with the general increase in interest rates (10-yr PIB yields have increased by 255bps YoY to 12.55%). In addition, the govt. has plans to increase domestic savings in order to reduce saving-investment gap. Moreover, 73 per cent of the budgetary borrowings for FY09 are expected to be met through NSS. Therefore, there is a strong possibility that NSS rates may be revised upwards during this year, Samiullah said. Tariq said that a proposal has been given to increase maximum investment in IPOs eligible for tax credit to Rs0.6million from Rs0.3 million. This step would increase incentive to invest in the capital markets, which would be beneficial for the financial services industry as a whole.   Commenting on the impact of FY09 budget on the equity market, Samiullah said that as the government is facing significant pressure from the fiscal side, the government may impose various taxes on capital markets, which may prove negative for the capital market. In context of general economy he don't expect any stringent measures as,  monetary tightening by SBP, emerging growth concerns, and  populist sentiment governing budget making exercise would make the government reluctant in this regard.