Karachi, August 3, 2023 – Pakistan Federal Board of Revenue (FBR) has implemented a new tax regime for the fiscal year 2023-24, which includes significant changes in the tax rates on dividend income.
According to the revised tax rates, individuals and entities on the Active Taxpayers List (ATL) will enjoy lower tax rates, while non-ATL recipients face significantly higher tax liabilities.
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The FBR announced that the withholding tax rate on dividend income for both ATL and non-ATL individuals will be zero percent when received by a Real Estate Investment Trust (REIT) scheme from a Special Purpose Vehicle. However, the tax treatment differs significantly for dividends received from other sources.
For dividends received by non-ATL individuals from Special Purpose Vehicles, as defined under the REIT Regulation of 2015, the tax rate has been set at a staggering 70 percent. In contrast, ATL individuals will be subject to a more lenient tax rate of 35 percent for the same dividend income.
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In the case of dividends paid by Independent Power Purchasers (IPPs), where the dividends are considered pass-through items, ATL individuals will be taxed at a rate of 7.5 percent, while non-ATL individuals will be taxed at 15 percent.
The FBR also clarified that for cash received from mutual funds, REIT schemes, and other cases unrelated to IPPs and REIT Special Purpose Vehicles, the tax rate is set at 15 percent for ATL individuals and 30 percent for non-ATL individuals.
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Moreover, in the case of companies where no tax is payable due to income exemption or carry forward of business losses under Part VIII Chapter III or tax credits claimed under Part X of Chapter III of the Income Tax Ordinance of 2001, the tax rates will vary based on ATL status. For ATL companies, the tax rate stands at 25 percent, while non-ATL companies will be taxed at a higher rate of 50 percent.
These new tax measures aim to incentivize individuals and companies to be a part of the Active Taxpayers List, thereby encouraging tax compliance and revenue generation for the government. However, they also raise concerns about the burden on non-ATL recipients, potentially impacting investment decisions and overall economic activity.
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Businesses and individuals are advised to carefully review the updated tax rates and consult with tax experts to understand the implications on their financial operations and investments. The FBR’s updated tax rates are expected to have a considerable impact on the country’s fiscal landscape in the coming year.
