Karachi, December 23, 2024 – The Federal Board of Revenue (FBR) has reported an impressive 95% increase in tax collection from dividend payouts during the first five months of the current fiscal year 2024-25. This significant surge reflects the FBR’s enhanced efficiency and the impact of recent tax policy changes.
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Foreign Investors Withdraw $807 Million from Pakistan in 4MFY25
Karachi, November 26, 2024 – Foreign investors operating in Pakistan repatriated over $807 million under the head of profit and dividends during the first four months (July–October) of the fiscal year 2024-25, according to official data released on Tuesday.
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Aramco Enhances Dividends Amidst Decline in 2023 Profits
Saudi Arabia’s state-owned oil giant, Aramco, announced on Sunday its decision to increase dividends for the past year, showcasing resilience in the face of a net profit dip from $161.1 billion in 2022 to $121.3 billion in 2023, primarily attributed to lower oil prices.
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Samsung Unveils Shareholder Return Program for 2024-2026
Samsung Electronics has unveiled its Shareholder Return Program for the period 2024-2026, following a thorough review by the Board of Directors.
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Foreign Investors Withdraw $532 Million from Pakistan in 5MFY24
Karachi, December 28, 2023 – In the first five months (July – November) of fiscal year 2023-24, foreign investors have withdrawn $532 million from Pakistan under the category of profit and dividends, according to data released by the State Bank of Pakistan (SBP).
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Tax on persons receiving dividends in Pakistan
A tax has been imposed on persons receiving dividends in Pakistan. The tax has been levied under Section 5 of the Income Tax Ordinance, 2001.
The Federal Board of Revenue (FBR) issued the Income Tax Ordinance, 2001 updated up to June 30, 2022 after incorporating changes made through Finance Act, 2022.
The following is text of Section 5 of the Ordinance, 2001:
Section 5. Tax on dividends.— (1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division III of Part I of the First Schedule, on every person who receives a dividend from a company or treated as dividend under clause (19) of section 2.
(2) The tax imposed under sub-section (1) on a person who receives a dividend shall be computed by applying the relevant rate of tax to the gross amount of the dividend.
(3) This section shall not apply to a dividend that is exempt from tax under this Ordinance.
Rate of Dividend Tax
The rate of tax imposed under section 5 on dividend received from a company shall be-
(a) 7.5% in the case of dividends paid by Independent Power Producers where such dividend is a pass through item under an Implementation Agreement or Power Purchase Agreement or Energy Purchase Agreement and is required to be reimbursed by Central Power Purchasing (CPPA-G) or its predecessor or successor entity.
(b) 15% in mutual funds, Real Estate Investment Trusts and cases other than those mentioned in clauses (a), (c) and (d).
(c) 0% in case of dividend received by a REIT scheme from Special Purpose Vehicle and 35% in case of dividend received by others from Special Purpose Vehicle as defined under the Real Estate Investment Trust Regulations, 2015.
(d) 25% in case of a person receiving dividend from a company where no tax payable by such company, due to exemption of income or carry forward of business losses under Part VIII of Chapter III or claim of tax credits under Part X of Chapter III.
Section 5A of the Ordinance, 2001 deals with taxation on undistributed profits. Following is the text of Section 5A:
Section 5A. Tax on undistributed profits.—(1) For tax years 2017 to 2019, a tax shall be imposed at the rate of five percent of its accounting profit before tax on every public company, other than a scheduled bank or a modaraba, that derives profit for a tax year but does not distribute at least twenty percent of its after tax profits within six months of the end of the tax year through cash:
Provided that for tax year 2017, bonus shares or cash dividends may be distributed before the due date mentioned in sub-section (2) of section 118, for filing of a return.
(2) The provisions of sub-section (1) shall not apply to—
(a) a company qualifying for exemption under clause (132) of Part I of the Second Schedule; and
(b) a company in which not less than fifty percent shares are held by the Government.
Likewise Section 5AA of the Income Tax Ordinance, 2001 deales with tax on return on investment in sukuk. Following is the text of Section 5AA:
Section 5AA. Tax on return on investments in sukuks.—(1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IIIB of Part I of the First Schedule, on every person who receives a return on investment in sukuks from a special purpose vehicle, or a company.
(2) The tax imposed under sub-section (1) on a person who receives a return on investment in sukuks shall be computed by applying the relevant rate of tax to the gross amount of the return on investment in sukuks.
(3) This section shall not apply to a return on investment in sukuks that is exempt from tax under this Ordinance.”
Rate of Tax on Return on investment in sukuks received from a special purpose vehicle
The rate of tax imposed under section 5AA on return on investment in sukuks received from a special purpose vehicle shall be—
(a) 25% in the case the sukuk-holder is a company;
(b) 12.5% in case the sukuk-holder is an individual or an association of person, if the return on investment is more than one million; and
(c) 10% in case the sukuk-holder is an individual and an association of person, if the return on investment is less than one million.”
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TAX YEAR 2021: rate of advance tax on dividends
ISLAMABAD: Federal Board of Revenue (FBR) has updated rate of advance tax on dividends for tax year 2021 (July 01, 2020 to June 30, 2021).
The FBR issued Income Tax Ordinance, 2001 (updated up to June 30, 2020) after incorporating amendment brought through Finance Act, 2020.
The FBR updated the rate of tax to be deducted under section 150 and 236S:
(a) 7.5 percent in case of dividend paid by Independent Power Producers where such dividend is a pass through item under an Implementation Agreement or Power Purchase Agreement or Energy Purchase Agreement and is required to be reimbursed by Central Power Purchasing Agency (CPPA-G) or its predecessor or successor entity.
(b) 15 percent in mutual funds and cases other than those mentioned in clauses (a) and (ba); and
(ba) 25 percent in case of a person receiving dividend from a company where no tax is payable by such company, due to exemption of income or carry forward of business losses under Part VIII Chapter III or claim of tax credits under Part X of Chapter III.
According to Section 150: Dividends — Every person paying a dividend shall deduct tax from the gross amount of the dividend paid at the rate specified in Division I of Part III of the First Schedule.
According to 236S: Dividend in specie — Every person making payment of dividend-in-specie shall collect tax from the gross amount of the dividend in specie paid at the rate specified in Division I of Part III of the First Schedule.
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TAX YEAR 2021: rate of dividend tax
ISLAMABAD: Federal Board of Revenue (FBR) has updated income tax rate on dividend received from a company during tax year 2021 (July 01, 2020 – June 30, 2021).
The FBR issued Income Tax Ordinance, 2001 (updated up to June 30, 2020) incorporating amendments brought through Finance Act, 2020. The FBR updated following rate of dividend tax:
The rate of tax imposed under section 5 on dividend received from a company shall be-
(a) 7.5 percent in the case of dividends paid by Independent Power Producers where such dividend is a pass through item under an Implementation Agreement or Power Purchase Agreement or Energy Purchase Agreement and is required to be re-imbursed by Central Power Purchasing (CPPA-G) or its predecessor or successor entity.
(b) 15 percent in mutual funds and cases other than those mentioned in clauses (a) and (c).
(c) 25 percent in case of a person receiving dividend from a company where no tax payable by such company, due to exemption of income or carry forward of business losses under Part VIII of Chapter III or claim of tax credits under Part X of Chapter III.
Section 5 of Income Tax Ordinance, 2001 explains tax on dividends as:
Section 5. Tax on dividends.— (1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division III of Part I of the First Schedule, on every person who receives a dividend from a company or treated as dividend under clause (19) of section 2.
(2) The tax imposed under sub-section (1) on a person who receives a dividend shall be computed by applying the relevant rate of tax to the gross amount of the dividend.
(3) This section shall not apply to a dividend that is exempt from tax under this Ordinance.
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100% tax exemption allowed on inter-corporate dividend
KARACHI: The government has allowed 100 percent exemption on inter-corporate dividend to companies entitled to group relief.
Analysts at Topline Securities on Tuesday said that as per the Tax Laws (Second Amendment) Ordinance 2019 issued on Dec 28th, the government has allowed 100% tax exemption on inter-corporate dividends, to companies entitled to group relief.
To avail group relief, one of the company in the group has to be a public company listed on a registered stock exchange in Pakistan, and the holding company has to directly hold 51 percent or more of the share capital of the subsidiary company.
Where none of the companies in the group is a listed company, the holding company shall hold directly 75 percent or more of the share capital of the subsidiary company.
To recall, the Finance Act 2016 excluded entities entitled to group relief from the exemption on inter-corporate dividend entirely.
The Finance Supplementary (Second Amendment) Act, 2019 addressed the issue, however allowed relief on tax liability up to the percentage of shareholding in the subsidiary, given that the company has registered itself for group relief.
Tax Laws (Second Amendment) Ordinance 2019, has now allowed 100 percent relief on tax liability on dividends received from a subsidiary given that the company has registered itself for group relief.
Our checks on few holding companies suggest following potential impacts on unconsolidated accounts based on last full year financials, the analysts said.
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FBR recommended tax exemption to inter-corporate dividend
KARACHI: Federal Board of Revenue (FBR) has been suggested to allow tax exemption to inter-corporate dividend for promoting group formation and consolidation and strengthen the overall corporate structure in Pakistan.
Pakistan Tax Bar Association (PTBA) – the umbrella of tax bars in the country – in its tax proposals for budget 2019/2020, said that through Finance Supplementary (Second Amendment) Act, 2019 a new clause in Part I of the Second Schedule of Income Tax Ordinance, 2001 was inserted, which with effect from 01 July 2019 exempts dividend income derived by a company, if the recipient has availed group relief under section 59B, computed according to the following formula:-
A x B/C; Where,
A is the amount of dividend;
B is the shareholding of the company receiving the dividend in the company distributing the dividends; and
C is the total ordinary share capital of the company distributing the dividend.
The PTBA said that pursuant to the provisions of clause (103A) of Part I of the Second Schedule, any income derived from inter-corporate dividend was exempt for group companies entitled to group taxation under section 59AA or group relief under section 59B.
The Finance Act, 2015 then added a condition, that such exemption would only be available if the consolidated return of the group had been filed. Subsequently, the Finance Act, 2016, excluded entities entitled to group relief under section 59B from the exemption entirely.
The above amendments created significant difficulties for corporate and industrial groups by adding multiple layers of taxation on dividends issued by group entities.
This resulted in corporate structures becoming inefficient due to multiple taxation of the same income, on mere distribution within the group, even though no value addition was taking place. This also led to substantial litigation from various groups.
Although, to cater the above problem an exemption has been introduced via the Second Supplementary Act, 2019, it is imperative to note that the newly inserted clause provides a relief only in the circumstances where the recipient of the dividend has availed group relief, i.e. loss has actually been surrendered between the two entities and even then, only to the extent of the shareholding that the parent entity has in its subsidiary. In effect, this means that:-
— since the provisions of section 59B require listing within a specified period, the relief would not be available to private groups unless they are willing to list;
— the relief would be available only to the entities actually surrendering or receiving the losses, and not all companies within the entire corporate structure;
— based on a literal interpretation, the holding company (i.e. the entity receiving the dividend) may not be able to claim the exemption if the losses under group relief are transferred from one subsidiary to another (i.e. between sister concerns);
— since a company cannot surrender its losses for more than three years, this is not an indefinite relief; and
— the benefit may practically be availed only in specific cases since a company, both receiving dividends and availing group relief in the same year, is normally only possible in structures where a holding company has several subsidiaries.
Overall, this has significantly watered-down relief compared to the demands of the corporate sector, the benefit of which may likely be availed in very few cases that may comply with all the conditions.
It is therefore recommended to exempt inter corporate dividends as it was used to be prior to the amendments brought about by the Finance Act, 2016.