Karachi, September 24, 2023 – The Federal Board of Revenue (FBR) has taken a significant step by directing companies to implement a 10 percent withholding tax on the issuance of bonus shares. This move comes as part of the government’s efforts to enhance tax collection and revenue generation.
Sources within the FBR have revealed that a new provision has been introduced into the Income Tax Ordinance of 2001, making it mandatory for companies to withhold 10 percent of the bonus shares they intend to distribute to shareholders.
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The newly incorporated section, known as 236Z, states that every company planning to distribute bonus shares to its shareholders must withhold ten percent of these shares. Furthermore, these bonus shares will only be issued to shareholders if the company successfully collects a tax amounting to ten percent of the value of the bonus shares, including the withheld portion. The value will be determined based on the day-end price on the first day of the closure of books for listed companies, and as prescribed for other types of companies.
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Companies are required to deposit the withheld tax within fifteen days of closing their books, regardless of whether or not the tax has been collected from shareholders. This provision aims to ensure timely tax collection and compliance.
In accordance with this directive, companies that are liable to deposit tax under section 236Z have the authority to collect and recover the tax amount from shareholders on whose behalf it has been deposited. This should occur prior to the distribution of bonus shares.
However, there are consequences for shareholders who fail to comply with these regulations. If a shareholder neither pays the tax amount to the company nor collects their bonus shares within fifteen days of the issuance of these shares, the company is permitted to dispose of the bonus shares to the extent that tax has been paid on the shareholder’s behalf.
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It’s important to note that the issuance of bonus shares will be considered as part of the shareholder’s income, and the tax collected by the company under this section or proceeds from the disposal of bonus shares will be deemed to have been paid on behalf of the shareholder. This tax payment under section 236Z will serve as the final tax on the income of the shareholder arising from the issuance of bonus shares.
This latest directive from the FBR represents a significant development in tax regulations for companies and shareholders alike. It is anticipated to bolster the government’s efforts to increase tax revenue while promoting transparency and compliance within the corporate sector. Companies and shareholders are urged to familiarize themselves with these new provisions and ensure timely compliance to avoid any potential penalties or consequences.
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