In a move to streamline tax collection and enhance transparency, the Federal Board of Revenue (FBR) has issued updated rates of withholding tax on payment of dividends for the fiscal year 2021-2022.
These rates, applicable to all dividend payments, aim to ensure that the government receives its due share of revenue while also promoting compliance within the taxpayer community.
The withholding tax on dividends, as outlined in Section 50 of the Income Tax Ordinance, 2001, is to be collected by every person disbursing dividends from the recipients at the time the dividend is actually paid. The updated rates, summarized in the Withholding Tax Card for the year 2021-2022, categorize the rates based on different scenarios.
Withholding Tax Rates:
(a) Dividends from Independent Power Purchasers (IPPs) in Specie:
In cases where dividends are paid or collected in specie by Independent Power Purchasers (IPPs), and the dividends are a pass-through item under an Implementation Agreement or Power Purchase Agreement or Energy Purchase Agreement, the tax rate stands at 7.5 percent.
For individuals not appearing in the Active Taxpayers’ List (ATL), the applicable tax rate is subject to a 100 percent increase under Rule-1 of the Tenth Schedule to the Income Tax Ordinance 2001.
(b) Mutual Funds and Real Estate Investment Trusts (REITs):
For dividends from mutual funds and REITs, excluding cases mentioned in (a) above, the withholding tax rate is set at 15 percent.
Similarly, for individuals not featured in the ATL, the applicable tax rate is subject to a 100 percent increase under Rule-1 of the Tenth Schedule to the Income Tax Ordinance 2001.
(ba) Dividends from Companies with Tax Exemptions or Business Loss Carryforwards:
In instances where individuals receive dividends from a company that is exempt from income tax or carries forward business losses under Part-VIII of Chapter-III, or claims tax credits under Part-X of Chapter-III, the withholding tax rate is 25 percent.
Again, for individuals absent from the ATL, the applicable tax rate is subject to a 100 percent increase under Rule-1 of the Tenth Schedule to the Income Tax Ordinance 2001.
Ensuring Compliance:
The FBR’s decision to revise and update withholding tax rates reflects a commitment to ensuring fair and efficient tax collection. These measures not only serve to enhance the government’s revenue streams but also encourage individuals and entities to maintain their status in the ATL, fostering a culture of tax compliance within the country.
As taxpayers navigate these revised rates, it is crucial to seek guidance from tax professionals to ensure accurate adherence to the updated regulations. The FBR, through such initiatives, aims to strike a balance between facilitating economic growth and ensuring fiscal responsibility.
