Karachi, May 26, 2023 (PPI-OT): Proposal of tax on reserves

With Federal Budget FY24 to be announced on June 9th, all eyes of the corporate sector are on the proposed income tax of 7.5% to 10% on companies' accumulated profits by the Reform and Revenue Mobilisation Commission (RRMC), which is reportedly under consideration by the government.

Clarity is still awaited on whether, if implemented, the tax application would be linked to payout history (a certain level or record of multiple years), current capital structure (especially debt levels), consider annual or accumulated reserves etc. Some companies are pre-emptively positioning themselves (incurring material costs in the process) for a possible capitalization of reserves via bonus issue.

We present data for KSE-100 companies (ex-banks) including their reserves, respective payout ratios and debt burden to ascertain how the companies stack up under different scenarios of the proposal transpiring.