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Tax collection from dividends more than doubles to Rs3.4bln in July-August

By Our Correspondent
September 20, 2020

KARACHI: Tax collection from company dividends more than doubled to Rs3.4 billion in the first two months of the current fiscal year of 2020/21 as the government raised taxation on the payouts, official data showed on Saturday.

The collection of tax on payment of dividends increased owing to changes brought into the tax laws through the budget for the current fiscal year.

Tax collection from payment of dividends by corporate entities increased 102 percent from Rs1.7 billion in the corresponding period of the last fiscal year, according to the data of Large Tax Office (LTO) Karachi.

From September 1, the large taxpayers units have been renamed as LTOs .The LTU-II Karachi has been renamed as Medium Taxpayers Unit Karachi.

Through the Finance Act 2019, the rate of tax was increased to 25 percent in the case of an individual receiving dividend from a company where no tax is payable by such company due to exemption of income or carry forward of business losses or claim of tax credits. However, the withholding tax was prescribed at 15 percent in such cases. Through the Finance Act 2020, the rate of withholding tax has also been enhanced to 25 percent in such cases to address the inconsistency. However, the rate of tax is 15 percent in case of distribution of dividends by mutual funds.

Prior to the Finance Act 2019, different tax rates were applicable, but all the rates were enhanced to 15 percent. For withholding tax on dividend also a standard rate of 15 percent is applied for individuals receiving income.

Previously dividend income was not part of income under normal tax regime and was subject to separate taxation. Prior to the Finance Act 2019, the rate of tax on dividends received by an individual from a mutual fund was 10 percent and 12.5 percent. Investors receiving dividends from stock funds were taxed at 12.5 percent. The dividend received by an individual from a development real estate investment trust scheme was reduced by 50 percent of the normal rate.

The withholding tax on dividend income in case of independent power producers is 7.5 percent. However, this rate of tax is applicable where such dividend is a passed through item under an implementation, power purchase or energy purchase agreements and is required to be reimbursed by Central Power Purchasing Agency or its predecessor or successor entity.