Tax collection from dividends surges 42pc in July-Sept

KARACHI: The Federal Board of Revenue (FBR) collected Rs4.6 billion in income tax from payment of dividends in the first quarter of the current fiscal year, significantly up 42 percent year-on-year, official data showed on Thursday.

The growth was attributed to lifting of lockdown and tax rate hike through amendments into the income tax ordinance in the budget 2020/21.

The collection of income tax from payment of dividends amounted to Rs3.3 billion in the first quarter of the last fiscal year.

An official at Large Taxpayers Office Karachi said earnings of corporate entities increased after lifting of coronavirus lockdown. The official said the improved earnings of the corporate entities would help the tax authorities to generate more revenue under the head.

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 withholding tax has also been enhanced to 25 percent in such cases to address the inconsistency. However, in the case of distribution by mutual funds the tax rate is 15 percent.

Prior to the Finance Act 2019, there were various tax rates but all the rates were enhanced to 15 percent.

There is also a standard withholding tax rate of 15 percent on dividend.

Previously, dividend income was not part of income under normal tax regime and was subject to separate taxation.

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, said Asian Development Bank in a report.

However, big industry posted 1.19 percent year-on-year growth in August as fertiliser and cement ­outputs started to rise on recovery in demand after lockdown,

Large scale manufacturing (LSM) sector fell 6.78 percent in August over July when the big industry posted growth for the first time in six months, according to the Pakistan Bureau of Statistics (PBS) as Covid-19 outbreak stirred latent potential of pharmaceutical and food industries despite shutdown setbacks to key industrial sectors. In July-August, LSM increased 3.66 percent over the corresponding period a year earlier, according to the PBS.