Section 150 of the Income Tax Ordinance, 2001, mandates that every person paying dividends must withhold tax.
The Federal Board of Revenue (FBR) has incorporated this provision in the updated Income Tax Ordinance, 2001, effective up to June 30, 2021, following amendments introduced through the Finance Act, 2021.
The specific language of Section 150 is as follows:
150. Dividends. — Every person paying a dividend shall deduct tax from the gross amount of the dividend paid or collect tax from the amount of dividend in specie at the rate specified in Division I of Part III of the First Schedule.
This section underscores the responsibility of individuals or entities disbursing dividends to deduct tax from the gross amount of the dividend paid. Alternatively, in the case of dividends in specie (non-cash dividends), tax should be collected from the recipient at the rate specified in Division I of Part III of the First Schedule.
The primary objective behind this provision is to ensure the smooth and efficient collection of taxes on dividend payments, a crucial component of revenue generation for the government. Dividend withholding tax is a mechanism through which the tax authorities can capture revenue directly at the source, minimizing the risk of tax evasion and ensuring compliance within the taxation framework.
The specified rate of tax to be deducted or collected is outlined in Division I of Part III of the First Schedule, offering clarity on the applicable rates for dividend payments. This provision not only contributes to the government’s revenue stream but also aligns with the broader goals of creating a fair and transparent tax system.
The FBR’s continuous efforts to update the Income Tax Ordinance demonstrate its commitment to modernize and adapt to the evolving economic landscape. By reinforcing the withholding tax on dividends, the FBR aims to enhance tax compliance, discourage tax evasion, and create a level playing field for all taxpayers.
It’s essential for businesses and individuals involved in dividend transactions to be cognizant of their obligations under Section 150. Failure to comply with these provisions may result in penalties or other punitive measures, as stipulated by the Income Tax Ordinance.
As Pakistan navigates the complexities of tax administration, the effective implementation of Section 150 contributes to the overall integrity and efficiency of the taxation system. By ensuring that taxes are withheld at the source, the government can more effectively fund public services and investments, fostering sustainable economic development.
