Tax collection on dividend income up 26pc in July-Oct

KARACHI: The collection of tax on dividend income increased 26 percent in the first four months (July–October) of this fiscal year, owing to an upward revision in relevant tax rates and improved company earnings post virus lockdown, officials said on Wednesday.

The Large Taxpayers Office (LTO) Karachi collected Rs5.92 billion during the period under review as compared with Rs4.73 billion in the same months of the last fiscal year, the latest data showed.

The officials said one of the reasons for this jump was an increase in the tax rate in the last budget, while the other was a marked improvement in the corporate earning as easing of COVID-19 lockdown in June 2020 led to a revival of economic activities and industrial manufacturing. Enhanced profits jacked up dividend income, they added.

However, the officials added that the resurgence of coronavirus was again threatening the economic activity which, if hit another bump, could dent tax collection on dividend income in coming months.

The rate of tax was increased to 25 percent in the case of a person 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 Finance Act, 2020, the government hiked withholding tax rate to 25 percent for such cases to address this inconsistency, but in the case of distribution by mutual funds it is 15 percent. Prior to the Finance Act, 2019, different tax rates prevailed but all of them were enhanced to 15 percent.

For withholding tax on dividend also a standard rate of 15 percent is being applied for persons receiving income.

The officials further added that previously dividend income was not part of income under normal tax regime and was subject to separate taxation.