Turnover tax increase may dent PSO’s earnings

KARACHI: PSO’s earnings is likely to fall 20-35 per cent if the proposed minimum turnover tax is increased to one per cent, according to analysts.

PSO’s effective tax rate will increase to 45-58 per cent with this hike. KASB Securities’ analysts believe that oil marketing companies (OMCs) and refineries will not be exempted from the turnover tax.

However, news reports hint at OMCs and refineries being exempt from the one per cent tax.

The federal budget has proposed that the minimum turnover tax be increased from 0.5 per cent to one per cent. Companies are now required to pay higher minimum turnover tax or corporate tax of 35 per cent.

The industry has hired a consultant to solve the issue, said KASB Securities analyst Mohammad Fawad Khan in a research report.

There is a high possibility that the government will revert back to its old tax rate or provide exemption to many companies with low margins, the analyst said.

In terms of break even point, any company with profit before tax less than 2.85 per cent of sales will be required to pay turnover tax, analyst Khan said.

Minimum tax liability clause is only applicable to loss-making entities and should not increase tax incidence for a company operating in a normal profit environment, said BMA Capital analyst.

Energy sector debt issue

Another concern is the absence of any framework for the settlement of energy sector liquidity issue.

Lack of funds allocated for the issue or introduction of new taxes also raise doubts about the financing source the government will use for a sustainable solution to the liquidity issue.

However, there is a possibility of a concrete framework for the issue by June 30 on the back of commitment by the government to the International Monetary Fund.

Published in the Express Tribune, June 9^th, 2010.