Breaking down tax on excess reserves

Wonder why the Finance Ministry insists that there will be no new taxes in the budget, when there are in fact new taxes introduced every year! Among the fresh tools at FBRs disposal for meeting collection targets this year, the most hotly debated is the ten percent tax on excess reserves of publicly listed companies.
Minority shareholders have got to be happy about the governments intended prod to the firms to drive more regular dividends. But managers of publicly listed firms and even some economic commentators are not so sure about the benefits of the proposed tax.
A similar tax was introduced by Ishaq Dar during his previous stint as Finance Minister. The stated logic behind its introduction has been the same each time: that the interests of minority shareholders will be better protected by driving listed companies issue regular payouts or pay higher taxes.
But the proposed tax, as it stands today, runs contrary to another priority of the government. In its Budget Briefing 2015, Ernst & Young Ford Rhodes Sidat Hyder has highlighted that "The proposed insertion of Section 5A in the Ordinance would tend to slow down growth of corporate businesses as profits instead of being reinvested in the business would be distributed among the shareholders."
The fears expressed above are exacerbated by the retrospective nature of the proposed amendment. In its current form, the proposed new tax is not only applicable on the excess reserves accumulated in a given tax year. Instead its ambit extends to a firms entire reserves in excess of one hundred percent of its paid up capital.
Projections by AKD Securities contend that if kept unchanged, the new tax could bring in about Rs50 billion for the exchequer in this fiscal alone. Thats Rs50 billion that companies cannot invest in expansion or BMR exercises.
But the proposed tax is unlikely to be adopted in its existing form. Informed sources have revealed that the ambit of the tax will be limited to the excess reserves generated during a financial year. The current suggestion that envisages dividend payouts on a biannual basis may also be revised. Mind you, the stock exchanges already require listed firms to issue payouts at least once in three years.