The Pakistan Stock Exchange’s (PSX) benchmark KSE-100 index opened in the green on Monday and gained more than 300 points on expectations of an “investor-friendly budget” for the fiscal year of 2024, which will be presented on June 9.
According to the PSX website, the index closed at 41,340.06 points, up 0.92 per cent or 375.52 points.
“The market rose on expectations of an investor-friendly budget, especially measures related to tax on reserves that may force listed firms to pay more to shareholders,” Topline Securities CEO Mohammed Sohail told Dawn.com.
Last week, Dawn reported that a dozen and a half companies listed on the PSX said they were going to hold board meetings for reasons other than financial results in the coming days. Their apparent objective was to prevent the possible expense arising out of an advance tax that the government may impose in the 2023-24 budget on their reserves, which are retained profits from past years.
Board meetings will help the companies shield themselves from the likely advance tax through the declaration of one-time, heavy pay-outs to shareholders or an increase in authorised share capital to create space for the issuance of bonus shares. Bonus shares aren’t taxed, unlike cash dividends that attract a 15pc tax.
Aba Ali Habib Securities’ Head of Research Salman Naqvi also attributed the PSX’s bullish sentiment to incentives in the upcoming budget and the reduction in political uncertainty.
“There are also speculations that companies with good cash reserves will be taxed in the upcoming budget,” he said, noting that companies were increasing their paid-up capital so that they could give bonuses and not cash dividends.
Naqvi also said that the cement sector witnessed an uptick because of an increase in exports and reduction in global coal prices. “The technology sector, which was depressed and technically oversold, has also shown growth,” he added.
There is still no clarity on whether the government will impose the advance tax on total reserves, the increase in reserves during the last three years or the sum earned but not distributed in the current year alone.
However, reports suggest companies that have piled up undistributed earnings on their balance sheets may be asked to pay an advance tax — adjustable against future dividend payments — of five per cent (for listed firms) and 7.5pc (for unlisted firms).