ISLAMABAD: The Federal Board of Revenue (FBR) has issued the updated Income Tax Rules, 2002, as of September 8, 2020. These rules elucidate the method for determining the value of bonus shares issued by companies that are not listed on the stock exchange.
Per the rules, the value of bonus shares distributed by an unlisted company to its shareholders, in accordance with sub-section (6) of section 236N of the Income Tax Ordinance, 2001, will be either the face value or the breakup value, whichever is higher.
The breakup value of the bonus share is calculated as follows:
(a) The total equity of the company is divided by the total number of ordinary shares (after the issuance of bonus shares) as of the last day of the period for which financial statements are prepared and approved by the Board of Directors for issuing bonus shares. The total equity of the company is determined by adding the paid-up capital of the ordinary shares and the reserves.
(b) For the purposes of sub-clause (a), the term “reserve” carries the same definition as provided under sub-section (3) of section 5A of the Ordinance.
These provisions aim to standardize the valuation process for bonus shares in non-quoted companies, ensuring transparency and fairness. This move is expected to bring clarity for shareholders and the companies issuing such shares, aligning with the broader objectives of tax compliance and accurate reporting.
The updated rules are part of the FBR’s ongoing efforts to refine tax regulations and enhance the tax framework in Pakistan. By specifying the method for calculating the value of bonus shares, the FBR addresses a crucial aspect of corporate taxation, contributing to better governance and accountability within the corporate sector.
These rules will likely impact numerous private companies that issue bonus shares as part of their profit distribution strategy. The clear guidelines will help in maintaining uniformity in tax assessments related to such distributions, potentially reducing disputes and ambiguities between taxpayers and tax authorities.
The update also underscores the FBR’s commitment to continuous improvement in tax administration, reflecting its proactive approach in dealing with evolving financial and corporate practices. Stakeholders in the corporate sector are encouraged to familiarize themselves with these updated rules to ensure compliance and avoid any potential legal challenges.
The updated Income Tax Rules, 2002, including the specifics on the valuation of bonus shares, are accessible on the FBR’s official website. Companies and tax professionals are advised to review these documents to understand the detailed provisions and ensure accurate application in their financial practices.