Karachi, September 4, 2024 – The Federal Board of Revenue (FBR) has imposed staggering tax rates of up to 70% on dividend income for individuals and entities not listed on the Active Taxpayers List (ATL) for the tax year 2024-25.
This significant move, reflected in the updated withholding tax card, underscores the FBR’s intent to enforce compliance and penalize those outside the ATL.
The FBR said that the rates, applicable under Section 150 of the Income Tax Ordinance, 2001, show a stark contrast between ATL and non-ATL taxpayers, further widening the financial implications for those not in compliance with tax regulations.
The breakdown of the new tax rates on dividend income is as follows:
• Independent Power Purchasers (IPPs): For ATL members, the tax rate is 7.5%. However, non-ATL entities will face a doubled rate of 15%. This rate applies specifically to dividends considered a pass-through item.
• Mutual Funds, Real Estate Investment Trusts (REITs), and Other Categories: Individuals and entities on the ATL will continue to be taxed at 15%, while non-ATL taxpayers will encounter a significant hike, with the rate set at 30%.
• Mutual Funds with Significant Debt Income: For mutual funds deriving 50% or more of their income from profit on debt, the tax rate is 25% for ATL participants. Non-ATL individuals will be subjected to a substantial 50% rate, doubling the burden.
• REIT Scheme Special Purpose Vehicles (SPVs): Dividends received by a REIT scheme SPV will remain tax-exempt for both ATL and non-ATL entities.
• Dividends from Other Special Purpose Vehicles: Dividends received from SPVs defined under the Real Estate Investment Trust Regulations, 2015, are taxed at 35% for ATL taxpayers, while non-ATL recipients will face a punitive 70% tax rate.
• Companies with Exempt Income or Business Losses: For companies where no tax is payable due to income exemptions or carry-forward business losses, the tax rate stands at 25% for ATL entities and 50% for non-ATL entities.
The FBR’s move is seen as a strict measure to ensure greater tax compliance and to discourage the avoidance of tax obligations. The significant difference in rates between ATL and non-ATL taxpayers highlights the advantages of being part of the ATL and serves as a warning to those who remain non-compliant. As the tax year progresses, the impact of these rates on dividend income, particularly for non-ATL entities, is expected to be substantial.