Karachi, December 7, 2024 – The Federal Board of Revenue (FBR) has issued a detailed explanation of the tax treatment applicable to bonus shares issued by companies during the tax year 2025, as per Section 236Z of the Income Tax Ordinance, 2001.
Under Section 236Z, specific rules govern the taxation of bonus shares to ensure compliance and transparency. Key provisions include:
1. Withholding of Bonus Shares: Companies issuing bonus shares must withhold 10% of the shares to be distributed to shareholders, regardless of any other prevailing law (Sub-section 1).
2. Tax Collection and Value Determination: The withheld shares are released only when the shareholder pays a tax equivalent to 10% of the value of the issued shares, including the withheld portion. The value is determined based on the day-end price on the first day of book closure for listed companies, while for other companies, it follows prescribed valuation rules (Sub-section 2).
3. Tax Deposit Deadline: Companies must deposit the tax collected within 15 days of book closure, even if shareholders have not paid the tax amount (Sub-section 3).
4. Company’s Right to Recover Tax: Companies depositing tax on behalf of shareholders can recover the tax before issuing the bonus shares (Sub-section 4).
5. Non-Payment Consequences: If a shareholder fails to pay the tax or collect their bonus shares within 15 days of issuance, the company has the right to sell the withheld shares to recover the tax amount (Sub-section 5).
6. Income Attribution: Bonus shares issued are considered part of the shareholder’s income. Any tax collected or proceeds from disposed shares are deemed to be paid on behalf of the shareholder (Sub-section 6).
7. Final Tax Regime: Tax paid under Section 236Z is treated as the final tax liability on income derived from bonus shares (Sub-section 7).
Additionally, the applicable tax rate differs based on the shareholder’s tax status. Individuals on the Active Taxpayers List (ATL) are taxed at 10%, while those not on the list face a higher rate of 20%.
This detailed framework ensures compliance with tax laws while providing clarity on the responsibilities of both companies and shareholders regarding the issuance and taxation of bonus shares. It emphasizes the FBR’s commitment to streamlining tax processes for the financial year ahead.