The Federal Board of Revenue (FBR) has introduced the latest withholding tax rates for dividend income in the Income Tax Ordinance, 2001, applicable for the tax year 2022-2023.
The rates, effective from July 1, 2022, were incorporated through the Finance Act, 2022, and offer a comprehensive framework for the taxation of dividend income based on the taxpayer’s status on the Active Taxpayers List (ATL).
According to the latest withholding tax card issued by the FBR, individuals who appear on the ATL will be subject to different tax rates compared to those who are not on the ATL. The withholding tax rates are categorized based on specific scenarios and types of entities receiving dividend income.
1. Dividends Passed Through Independent Power Purchasers (IPPs):
• ATL: 7.5%
• Non-ATL: 15%
2. Mutual Funds, Real Estate Investment Trusts (RIET), and Other Cases:
• ATL: 15%
• Non-ATL: 30%
3. Dividend Received by a RIET Scheme from Special Purpose Vehicle:
• ATL: 0%
• Non-ATL: 0%
4. Dividend Received by Others from Special Purpose Vehicle (As per Real Investment Trust Regulations, 2015):
• ATL: 35%
• Non-ATL: 70%
5. Companies Exempt from Tax or with Business Loss Carryforwards or Tax Credits:
• ATL: 25%
• Non-ATL: 50%
Of particular note is the higher withholding tax rate of 70% applicable to individuals not appearing on the ATL when receiving dividends from a special purpose vehicle, as defined under the Real Investment Trust Regulations, 2015. This significant difference in tax rates aims to incentivize taxpayers to actively participate in the tax system by ensuring their presence on the ATL.
The withholding tax rates on dividend income serve as a mechanism for the government to collect revenue at the source, providing a streamlined approach to tax collection. By delineating rates based on ATL status, the FBR encourages individuals to register and maintain their status as active taxpayers, fostering a culture of compliance.
It is crucial for taxpayers and entities involved in dividend transactions to be aware of these updated withholding tax rates to fulfill their tax obligations accurately and in a timely manner. The FBR’s commitment to transparent and updated tax regulations reflects its ongoing efforts to enhance the efficiency and effectiveness of the tax system in Pakistan.
As the tax landscape continues to evolve, taxpayers are advised to stay informed about any further updates or amendments to tax regulations, ensuring compliance with the latest requirements outlined by the FBR.
