KARACHI: The imposition of one time supertax at 10 percent on big corporates is likely to help the coalition government to collect more than Rs 200 billion which would be integral part of the additional tax measures of Rs 436 billion agreed with IMF in Budget FY23, experts said.
In run up-to IMF-agreement, the coalition government has announced another surprise imposition of 10 percent one-time tax on big corporates (likely 4 percent poverty tax and 6 percent super tax). The one-time tax will be applicable on annualized earnings of sugar, cement, steel, textile, tobacco, fertilizer, banks, oil and gas, beverages, automobile, chemical, airlines and LNG terminals.
“Our channel checks suggest that most of the companies with fiscal year ending June 2022 are likely to make a tax provision in June 2022 quarter and hence their FY22 earnings will be impacted,” Farhan Mahmood, senior analyst at Sherman Securities said.
Moreover, there is likely chance that the super tax (already banks’ bearing this tax and their cases in litigation) may fully be provided but companies may withhold payments and will be paid once clarity emerges on super tax, he added.
A blanket tax rate of 10 percent is detrimental for the companies having lower net margins like steel and cement (already affected with rising commodity prices). Besides high payout companies may be affected since their distributable profits will also decline (fertilizer and banks).
“Given the fact that E&Ps are already yielding impressive net profit margin amid better crude oil prices along with lowest PE multiple, we do not foresee major impact on E&Ps stock price,” Farhan said adding that similar case with OMCs and refineries as their FY22 earnings are at record high due to inventory gains and record GRMs.
“We believe that banking sector will be negatively impacted due to imposition of super tax of 6 percent and 4 percent poverty alleviation tax. We await further clarification on this sector as our channel checks reveal that 4 percent super tax is already imposed and hence there will be additional 2 percent super tax (total additional tax of 6 percent),” he said. This will translate into effective tax rate of 55 percent (may go higher considering revised tax based on ADR in budget FY23). “For banks our earnings for CY22 will decline by 12 percent”, he said.
An analyst at Topline Securities estimates said this measure can result in additional tax collection of Rs 250-300 billion for government. This may help in achieving the revenue and deficit target set by IMF. Government is likely to set tax revenue target of Rs 7.4 trillion up from the initial target set of Rs 7.0 trillion for FY23.
He said the decision of imposition of new tax will negatively impact earnings of big companies by 14 percent in year 2022.
Copyright Business Recorder, 2022