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.
The LTO Karachi reported that the collection of withholding tax from dividend income soared to Rs 9.43 billion during the first four months of the current fiscal year, compared to the Rs 7.13 billion collected in the corresponding months of the previous fiscal year. This surge underscores a substantial growth in tax revenues from dividend income, reflecting positive trends in the financial landscape.
Tax offices, in accordance with Section 150 of the Income Tax Ordinance, 2001, collect taxes on dividend income. The section stipulates that every entity disbursing dividends is obligated to deduct tax from the gross amount of the dividend paid or collect tax from the amount of dividend in specie at the rates specified in Division I of Part III of the First Schedule.
Under Division I of Part III of the First Schedule, the rates of tax deduction vary based on different categories:
• 7.5% for dividends paid by Independent Power Producers, where such dividends are a pass-through item under an Implementation Agreement or Power Purchase Agreement or Energy Purchase Agreement and are required to be reimbursed by the Central Power Purchasing Agency (CPPAG) or its predecessor or successor entity.
• 15% for mutual funds, Real Estate Investment Trusts, and other cases not covered in clauses (a), (c), and (d).
• 0% for dividends received by a Real Estate Investment Trust (REIT) scheme from a Special Purpose Vehicle and 35% for dividends received by others from a Special Purpose Vehicle as defined under the Real Estate Investment Trust Regulations, 2015.
• 25% for a person receiving dividends from a company where no tax is payable by such company due to the 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.
In all the mentioned cases, the rates are doubled for individuals not included in the Active Taxpayers List (ATL).
Sources within the LTO Karachi attribute the substantial increase in tax collection from dividend income to the effective monitoring of companies’ financial affairs. Additionally, companies have reported significant profits in terms of the local currency (Pakistani Rupee), leading to substantial growth in both profits and dividend income.
This surge in tax collection from dividend income is likely to positively impact the government’s fiscal position and contribute to meeting revenue targets set for the fiscal year 2023-24. The effective implementation of tax regulations and improved financial performance of companies are anticipated to sustain this positive momentum in the coming months.
