Dividend income tax collection up 27 percent in July-December

KARACHI: The collection of withholding tax on dividend income has surged by 27 percent during the first half of the current fiscal year owing to improvement in profitability of the corporate sector, officials said.

The collection of withholding tax on dividend income increased to Rs9.1 billion during July-December 2020/2021 as compared with Rs7.17 billion in the corresponding period of the last fiscal year, according to statistics of Large Taxpayers Office (LTO) Karachi.

The LTO Karachi officials attributed the rise in tax collection to improved profitability of the corporate sector and hike in tax rate announced in the budget of the last fiscal year. Corporate earnings had grown after ease in coronavirus lockdown, the official said.

The government decided to lift the lockdown in June 2020 and allowed normal industrial and commercial activities. This resumption of economic activities helped the corporate sector post earnings during the first half.

However, officials said that the second wave of the coronavirus pandemic again threatened corporate profitability in coming months, which might affect revenue collection. Officials also attributed the increase in tax collection on dividend income on the higher tax rate announced in the last budget.

The rate of tax was increased to 25 percent in the case of a person receiving dividend from a company where no tax was payable by such company due to exemption of income or carry forward of business losses or claim of tax credits.

However, tax withholding was prescribed at 15 percent in such cases. Through Finance Act, 2020 the rate of withholding tax has also been enhanced to 25 percent in such cases to address this inconsistency.

A massive growth was seen in withholding tax collection under the head of dividend income for the month of December 2020 that might be attributed to post lockdown economic activities. The collection under this head posted 65 percent growth to Rs2.34 billion in December 2020 as compared with Rs1.42 billion in the same month of the last year.