Federal Budget Retains 10% Super Tax for Banks, E&P, Fertilizer; Imported Cosmetics Cheaper

What the new federal budget changed

Pakistan's federal government has officially implemented its new budget for the fiscal year. A key change involves the corporate super tax, a levy on high-earning companies. Previously, companies with annual income below PKR 500 million (50 crore) faced super tax rates ranging from 1% to 7.5%, which has now been abolished for them. For companies earning above PKR 500 million, the super tax rate has been reduced from 10% to 8%.

However, the budget specifically maintains the 10% super tax rate for certain sectors with annual income exceeding PKR 150 million (15 crore). These include banking companies, oil and gas exploration companies, and income derived from fertilizer sales. This means these specific sectors will not benefit from the general reduction or removal of the super tax.

Separately, the new finance bill has also reduced additional customs and regulatory duties by 2% to 5% on a range of imported beauty products. This includes items like makeup kits, perfumes, body sprays, lotions, facial creams, hair colors, and various beauty tools, making them cheaper for consumers.

Why super tax matters for specific sectors

The super tax directly impacts a company's bottom line, which is its profit after all expenses and taxes. For the sectors where the 10% super tax has been retained, it means a significant portion of their earnings will continue to be paid to the government, directly reducing their net profit. This is particularly impactful for companies that are already large and profitable, as they are the ones most likely to exceed the PKR 150 million income threshold.

For Commercial Banks, Oil & Gas Exploration firms, and Fertilizer companies, this retention means they will not see the earnings boost that other large companies might experience from the super tax reduction. This can affect their ability to retain earnings for reinvestment, distribute dividends, or manage their balance sheets.

On the other hand, the reduction in duties on imported beauty products could affect local manufacturers of similar items. Cheaper imports mean increased competition for domestically produced goods, potentially impacting sales volumes and profit margins for local players in the personal care segment.

Which stocks, and why

The retention of the 10% super-tax will have a negative impact on several listed companies:

• Commercial Banks: Major banks like Habib Bank, United Bank, MCB Bank, Meezan Bank, Bank Alfalah, Bank Al Habib, National Bank of Pakistan, Askari Bank, and Faysal Bank are directly affected. Given their substantial annual incomes, they are highly likely to fall under the category where the 10% super tax remains applicable. This directly reduces their profitability.

• Oil & Gas Exploration Companies: Firms such as Oil & Gas Development Company, Pakistan Petroleum, Pakistan Oilfields, and Mari Petroleum are also directly subject to the retained 10% super tax. As large, profitable entities, this tax will continue to weigh on their earnings.

• Fertilizer Companies: Companies like Engro Fertilizers, Fauji Fertilizer, Fauji Fertilizer Bin Qasim, and Fatima Fertilizer, whose core business is fertilizer sales, will continue to pay the 10% super tax on that income. Engro Corporation, as a conglomerate with a significant fertilizer segment, will also see a direct negative impact on its overall earnings. Dawood Hercules, a holding company with a major stake in Engro's fertilizer business, will experience an indirect negative impact through its exposure to Engro's profitability.

Regarding the reduction in duties on imported beauty products, Colgate-Palmolive Pakistan, which manufactures and markets personal care products locally, could face increased competition. Cheaper imported alternatives might put pressure on its sales and margins, leading to a low negative impact.

What to watch

Investors should closely monitor the upcoming quarterly earnings reports from the affected banking, E&P, and fertilizer companies. These reports will provide concrete data on how the retained 10% super tax impacts their net profits and earnings per share. Any specific commentary from management regarding the tax burden will also be important. For the personal care sector, tracking sales volumes and market share data for local versus imported products in the coming months will indicate the competitive pressure from reduced import duties. The government's revenue collection figures related to the budget-2027 will also be a broad indicator of the fiscal impact of these tax measures.