Karachi, November 24, 2023 – The withholding tax collection from dividend income has experienced a remarkable increase of 32 percent during the initial four months (July – October) of the fiscal year 2023-24, according to provisional data from the Large Taxpayers Office (LTO) in Karachi.
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Pakistan Imposes Up to 70% Tax on Dividend Income for Non-ATL Recipients
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.
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Section 5 of Income Tax Ordinance, 2001
ISLAMABAD: Section 5 of Income Tax Ordinance, 2001 deals with income of a persons who receives dividend from a company.
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Tax law defines dividend income
Income Tax Ordinance, 2001 has defined types of income included in dividend distribution for the purpose of tax levy.
The Income Tax Ordinance, 2001 updated up to June 30, 2020 issued by the Federal Board of Revenue (FBR), explained that dividend includes —
(a) any distribution by a company of accumulated profits to its shareholders, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets including money of the company;
(b) any distribution by a company, to its shareholders of debentures, debenture-stock or deposit certificate in any form, whether with or without profit, to the extent to which the company possesses accumulated profits whether capitalised or not;
(c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not;
(d) any distribution by a company to its shareholders on the reduction of its capital, to the extent to which the company possesses accumulated profits, whether such accumulated profits have been capitalised or not;
(e) any payment by a private company as defined in the Companies Ordinance, 1984 (XLVII of 1984)] or trust of any sum (whether as representing a part of the assets of the company or trust, or otherwise) by way of advance or loan to a shareholder or any payment by any such company or trust on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company or trust, in either case, possesses accumulated profits; or
(f) remittance of after tax profit of a branch of a foreign company operating in Pakistan;
but does not include —
(i) a distribution made in accordance with sub-clause] (c) or (d) in respect of any share for full cash consideration, or redemption of debentures or debenture stock, where the holder of the share or debenture is not entitled in the event of liquidation to participate in the surplus assets;
(ii) any advance or loan made to a shareholder by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company;
(iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause] (e) to the extent to which it is so set off; and
(iv) remittance of after tax profit by a branch of Petroleum Exploration and Production (E&P) foreign company, operating in Pakistan.
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Withholding tax rates on dividend income updated for tax year 2021
ISLAMABAD: Federal Board of Revenue (FBR) has updated withholding tax card for dividend income to be applicable during Tax Year 2021 (2020-2021).
The FBR issued the withholding tax card 2020-2021 (updated up to June 30, 2020) after incorporating amendments made to Income Tax Ordinance, 2001 through Finance Act, 2020.
Under Section 150 of Income Tax Ordinance, 2001, every person paying dividend shall collect/deduct withholding tax at prescribed rates from recipient of dividend at the time the dividend is actually paid.
The tax shall be final under section 5 read with section 8 of the Income Tax Ordinance, 2001.
According to the updated withholding tax card:
Tax shall be deducted on the gross amount of dividend paid:
(a) In the case of dividend paid by Independent Power Purchasers (IPPs) whereas 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:
The tax rate shall be 7.5 percent and 15 percent for persons not appearing on Active Taxpayers List (ATL).
(b) In mutual funds and cases other than mentioned at (a) above and (ba) below
The tax rate shall be 15 percent and 30 percent for persons not appearing on the ATL.
(ba) In case of 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 of Chapter-III or claim of tax credits under Part-X of Chapter-III.
The tax rate shall be 25 percent and the rate shall be increased by 100 percent in case the person is not on the ATL.
Return on Investment in Sukuk under Section 150A
Special Purpose Vehicle, Company shall collect / deduct withholding tax at prescribed rates from Sukuk holders on payment of gross amount of return on investment at the time of actual payment
The tax shall be final under section 5AA read with section 8 of the Income Tax Ordinance, 2001.
On Payment of return on investment in Sukuks:
a) In case the Sukuk- holder is a company the tax rate shall be 25 percent and it shall be increased by 100 percent in case persons are not on the ATL.
b) In case the Sukuk – holder is an individual or an association of person, if the return on investment is more than one million, the tax rate shall be 12.5 percent and the rate shall be doubled in case persons not appearing on the ATL.
c) In case the Sukuk – holder is an individual and an association of person, if the return on investment is less than one million, the tax rate shall be 10 percent and will be doubled in case person is not on the ATL.
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Uniform income tax rate applied on dividend income
ISLAMABAD: The income tax rates on dividend income on various shares of companies have been increased to make an uniform rate applicable for tax year 2020 and onwards.
Sources in Federal Board of Revenue (FBR) said that the various rates of dividend rates had been uniformed at 15 percent.
Prior to budget 2019/2020 dividend income is not part of income under normal tax regime and is subject to separate taxation. The standard rate of tax on dividend income is now 15 percent.
The previous tax rate of 7.5 percent on dividend received on shares of a company set up for power generation or on shares of a company supplying coal exclusively to power generation projects has been increased to 15 percent.
Further, tax rate of dividend which was charged at 25 percent for persons receiving dividend from companies which enjoy exemption of tax on income or where no tax is payable due to availability of tax credits or due to brought forward business or depreciation losses.
Previously the rate of tax on dividend received by a person from a mutual fund was 10 percent and 12.5 percent. Persons those were receiving dividend from stock fund is also taxed 12.5 percent.
Furthermore dividend received by a person from a development REIT scheme was reduced by 50 percent of the normal rate.
Now all these rates are being enhanced to 15 percent, the FBR said.
For withholding tax on dividend also a standard rate of 15 percent is being applied for persons receiving income.
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Withholding Tax Card: non-ATL persons to pay 30pc tax on dividend income
KARACHI: Federal Board of Revenue (FBR) has issued withholding tax card for tax year 2019/2020 effective from July 01, 2019 under which person not appearing on the Active Taxpayers List (ATL) shall pay up to 30 percent on dividend income.
According to documents made available to PkRevenue.com, the FBR said that every person paying dividend shall collect withholding tax under Section 150 of the Income Tax Ordinance, 2001 at the time the dividend is actually paid.
The following rates shall be applicable for tax year 2019/2020:
(a) In the case of dividend paid by Independent Power Purchasers (IPPs) whereas 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:
The tax rate shall be 7.5 percent and in case persons not appearing in the ATL the applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 15 percent.
(b) In cases other than mentioned at (a) above the tax rate shall be 15 percent and if persons not appearing in the Active Taxpayers’ List the rate of tax required to be deducted/collected, as the case may be, is to be increased by 100 percent of the above (as specified in the First Schedule to the Income Tax Ordinance, 2001 (updated as per Finance Act, 2019), i.e. 30 percent.
The FBR further said that special purpose vehicle, company shall collect withholding tax under Section 150A of Income Tax Ordinance, 2001 from Sukuk holders on payment of gross amount of return on investment.
On Payment of return on investment in Sukuks:
a) In case the Sukuk- holder is a company, the tax rate shall be 15 percent and if persons not appearing in the Active Taxpayers’ List the applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 30 percent.
b) In case the Sukuk – holder is an individual or an association of person, if the return on investment is more than one million, the tax rate shall be 12.5 percent and if persons not appearing in the Active Taxpayers’ List then the applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 25 percent.
c) In case the Sukuk – holder is an individual and an association of person, if the return on investment is less than one million, the tax rate shall be 10 percent and if persons not appearing in the Active Taxpayers’ List then the applicable tax rate is to be increased by 100 percent (Rule-1 of Tenth Schedule to the Ordinance), i.e. 20 percent.
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