Dividend income tax collection rises to Rs11.8bln in nine months

KARACHI: The collection of withholding tax on dividend income has recorded a 20 percent growth during the first nine months of the current fiscal year owing to improvement in profitability of the corporate sector, official data showed on Saturday.

The collection of withholding tax on dividend income increased to Rs11.76 billion during July – March compared with Rs9.57 billion in the corresponding period of the last fiscal year, according to statistics of Large Taxpayers Office (LTO) Karachi.

The LTO Karachi, the biggest arm of the Federal Board of Revenue, officials attributed the rise in tax collection to improved profitability of the corporate sector and hike tax rate announced in the budget of the last fiscal year.

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 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.

The sources also attributed the higher dividend payment to corporate earnings that had grown after ease in coronavirus lockdown. July was the first month of growth after six months of depression aggravated by industrial and economic activity shutdown associated with the coronavirus.

Overall, the manufacturing sector contracted 2.6 percent in FY2020 as shutdowns and supply chain disruptions related to COVID-19 exacerbated other adverse factors affecting the sector since FY2019.

The State Bank of Pakistan said the real GDP contracted by 0.4 percent in the fiscal year 2019/20, making it the first time since the fiscal year 1951-52 that the country recorded a negative economic growth. However, it revised the country’s economic growth rate up to three percent for the current fiscal year from 1.5 percent.

Sources said that the resumption of economic activities helped the corporate sector to post earnings during the overall period of the first nine months of the current fiscal year.

However, the sources said that the third phase of coronavirus had threatened the corporate profitability, which may affect revenue collection in coming months.

The withholding tax on dividend income fell by 11 percent to Rs912 million in March 2021 as compared with Rs1.03 billion in the corresponding period of the last year.