The government of Pakistan has introduced a new measure through the Finance Bill, 2023, which imposes a 10 percent income tax on the issuance of bonus shares by companies to their shareholders. This tax is implemented under a new section, 236Z, of the Income Tax Ordinance, 2001.
According to the newly introduced section:
Companies issuing bonus shares to their shareholders are required to withhold 10 percent of the bonus shares to be issued.
Bonus shares that are withheld can only be issued to shareholders if the company collects a tax equal to 10 percent of the value of the bonus shares, including the bonus shares withheld. The value of the bonus shares is determined based on the day-end price on the first day of the closure of books for listed companies, and as prescribed for other companies.
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The company is responsible for depositing the tax within fifteen days of the closure of books, regardless of whether the tax has been collected from the shareholders.
Companies liable to deposit tax under this section are entitled to collect and recover the tax from the shareholders on whose behalf the tax has been deposited before the issuance of bonus shares.
If a shareholder fails to make payment of the tax to the company or collect their bonus shares within fifteen days of the bonus shares’ issuance, the company may proceed to dispose of the bonus shares to the extent that tax has been paid on behalf of the shareholder.
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The issuance of bonus shares is considered as the shareholder’s income, and the tax collected by the company or the proceeds from the disposed bonus shares, as paid under this section, are treated as having been paid on behalf of the shareholder.
The tax paid under this section is considered as the final tax on the income of the shareholder arising from the issuance of bonus shares.
These measures have been introduced to ensure proper taxation of bonus shares and to bring transparency to the taxation system related to such transactions.
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