· News reports doing the rounds indicate GoP plan to tax distributable reserves of corporates for increasing tax collection. For next year, a tax collection target of PkR9.2tn is reportedly being mooted.

· In this regard, a tax of 5% on accumulated profits of listed companies and 7.5% on accumulated profits of unlisted companies has been proposed, with the tax adjustable on future payouts.

· Three options with corporates to counter the said measure, in our view, include i) big dividend payouts (where cash is available), ii) issuance of bonus shares and iii) buy-back programs.

· Already at the PSX, several corporates have announced EOGMs for increasing authorised capital to issue bonus shares

· In FY15, a similar tax was imposed, slating a 10% tax on distributable reserves where the payout was less than 40% which was subsequently changed in FY17 to 5% of accounting profit should the payout be lower than 20%.

· While the proposed tax measure will impact all and sundry, major corporates likely to come into the limelight include MARI, INDU, GADT, LUCK (buyback already in pipeline), APL, MUREB, NML, KOHC, HBL, ENGRO etc.

· From the PSX’s vantage, bonus issues can potentially spur investor interest in the near term.

Courtesy- AKD Research