Thursday February 22, 2024

Tax on dividend income grows 30pc

January 14, 2020

KARACHI: The tax collection on dividend income increased sharply by 30 percent during the first six months of the current fiscal year due to application of uniformed rates in the last budget, officials said on Monday.

According to statistics, the revenue collection on dividend income increased to Rs7.17 billion during first half (July-December) of 2019/2020 as compared with Rs5.51 billion in the same half of the last fiscal year.

Statistics of Large Taxpayers Unit (LTU) Karachi, which has jurisdiction over big volume companies, showed that revenue collection under this head increased more significantly by 32 percent. The unit collected Rs1.48 billion as income tax on dividend income in December 2019, as compared with Rs1.07 billion in the same month of last year.

Sources said previously different reduced rates were applied prior to budget 2019/2020, but now all these rates were enhanced to 15 percent. For withholding tax on dividend as well a standard rate of 15 percent was being applied for persons receiving income.

Previously, dividend income was not part of income under normal tax regime, and was subject to separate taxation. The standard rate of tax on dividend income was 15 percent.

The government also increased the tax rate 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 from 7.5 percent to 15 percent.

Further, tax rate of dividend was charged at 25 percent for persons receiving dividend from companies which enjoy exemption of tax on income or where no tax was payable due to availability of tax credits or due to brought forward business or depreciation losses.

Furthermore, previously the rate of tax on dividend received by a person from a mutual fund was 10 percent and 12.5 percent. Persons receiving dividend from stock fund were taxed at 12.5 percent. The dividend received by a person from a development REIT scheme was reduced by

50 percent of the normal rate. Sources said now the tax rate of 7.5 percent was applicable in case of dividend paid by Independent Power Purchasers, where such dividend was a pass through item under an Implementation Agreement or Power Purchase Agreement or Energy Purchase Agreement and was required to be reimbursed by Central Power Purchasing Agency (CPPA-G) or its predecessor or successor entity.

However, the rate should be 100 percent increase in case person was not on the Active Taxpayers List (ATL).

The FBR sources also pointed to foreign companies making substantial profits as another reason for increase in dividend income. They said that the foreign companies had now started repatriating their profits on their incomes.