Pakistan Stock Exchange PSX index collapses 1650+ points as soon as the government announced on Friday that a a 10 per cent “super tax” will be imposed on large-scale industries and businesses.
The benchmark index plummeted 2,161 points immediately as investors rushed to liquidate their investments in anticipation of lower corporate earnings and the subsequent fall in share prices.
A falling rupee and the likely interest rate hike also played the role in PSX index collapses 1650+ points, acclaimed by Ahsan Mehanti of Arif Habib Corporation
The KSE-100 index settled at 41,051.79 points, down 1,665.18 points or 3.9pc from a day ago. The benchmark recorded its 11th worst single-day decline ever, according to data compiled by Ismail Iqbal Securities.
The trading volume increased 21.4pc to 424.2 million shares while the traded value went up 26.3pc to $61.7m on a day-on-day basis.
The government will collect the new tax on corporate earnings for 2021-22 from companies that have annual profits of more than Rs300m each and belong to 13 sectors. These sectors are sugar, cement, steel, textile, tobacco, fertiliser, banking, oil and gas, beverage, automobile, airline, chemical and LNG terminal. Many of these sectors are index heavyweights, which means their constituents have a disproportionately high representation in the main benchmark of the bourse.
“Although this move will affect companies’ profits for the current year, we believe the valuations are still attractive. After this measure, the market is trading at a price-to-earnings multiple of 4-5. We think the currency and macro stability after the IMF (programme resumption) will provide the much-needed support to the local bourse,” said Topline Securities in a note to its clients.
The effective tax rate for companies belonging to these specific sectors and meeting the profit threshold will increase from 29pc to 39pc for tax year 2022. It’ll be a one-off tax and won’t apply to tax year 2023, the brokerage added.
It’s important to note that the effective tax rate on companies belonging to the rest of the sectors will go up from 29pc to 33pc for tax year 2022. That’s because the government has already announced a 4pc tax on top of the regular corporate tax rate of 29pc.
Stocks contributing significantly to the traded volume included K-Electric Ltd (36.66m shares), Cnergyico PK Ltd (25.85m shares), Pakistan Refinery Ltd (25.3m shares), Telecard Ltd (16.9m shares) and Unity Foods Ltd (15.78m shares).
