How will govt Income Tax (Amendment) Bill 2021 impact industry?

The government's decision to put forward the Income Tax (Amendment) Bill 2021 has become a hot debate among financial experts, as the government aims to generate Rs 70 to Rs 140 billion through these amendments.

As per Topline Securities in its report, among the major amendments made in the bill, the government amendment in the removal of relief on Inter-Corporate dividend (103C) will result to have 5-7% impact on the profitability of holding companies like Engro Corp, International Industries (INIL), Kohinoor Textile (KTML), among others.

Secondly, the addition of a clause pertaining to IPPs (132C) under which the government intends to discontinue exemptions granted to IPPs who wish to get a Letter of Intent after Jun-2021. The expert believes that the discontinuation of exemption will not impact existing IPPs or those will have already obtained a Letter of Intent from the government like Lucky Energy, Thal Nova, Thar Energy amongst others.

Coming to the change in the tax treatment of IT Companies (133 & 65F), under which the government has proposed to remove blanket tax exemption assigned to IT companies. The report said that the amendment may not impact the listed IT company's profitability given the share of exports in their total revenues.

On the removal of exemption of tax on profit on debt derived by Hub Power (clause 74), the report said that if FBR considers late payment surcharge income of Hub Power as profit on debt then its profits will be impacted by 6-8%.

The report said the government decision for the removal of the tax credit for enlistment (65C) under which the company which opts for enlistment at PSX on or before the 30th day of June 2022 was subject to avail a tax credit equal to 20% of the tax payable for first two years and 10% for next two years. The report said that the amendment draft proposes removal of this clause may discourage new listings at PSX.

Regarding the removal of tax exemption on the sale of immovable property to REITs, the report was of the view that this will not impact listed REITs. However, this may have a negative impact on potential REIT listings.

The report said that the removal of tax exemption on profit derived by Modarabas by the government will have a highly negative impact on earnings of listed modarabas to the tune of ~20%.

Lastly, on the removal of tax exemption on profit derived by LNG terminal operators, the report said that any upcoming LNG terminal by a listed concern may get affected by this development.