Tax collection from dividend income grows 33%
KARACHI: The tax collection from dividend income has registered a sharp growth of 33 per cent during the fiscal year 2020/21, owing to better earnings of the corporate sector, official sources said on Saturday.
The collection of income tax grew to Rs18.46 billion during the fiscal year 2020/21, compared with Rs13.83 billion in the preceding fiscal year. The tax collection from the dividend income is based on the earnings of the companies registered with the Large Taxpayers Office (LTO) Karachi.
The LTO Karachi is the major revenue arm of the Federal Board of Revenue (FBR) and contributes around 40 per cent of the land taxes in the total collection at the national level.
The sources attributed the rise in the tax collection to improved profitability of the corporate sector and hike in the tax rate announced in the last budget 2020/21.
The tax rate was increased to 25 per cent in the case of a person receiving dividend from a company where no tax is payable by such company due to the exemption of income or carry forward of business losses or claim of tax credits, the sources said.
However, the withholding tax was prescribed at 15 per cent in such cases. Through the Finance Act, 2020, the withholding tax rate has also been enhanced to 25 per cent 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. The government decided to lift the lockdown in June 2020 and allowed normal industrial and commercial activities.
The resumption of economic activities helped the corporate sector post earnings during the overall period of the first nine months of the current fiscal year, the sources said, adding that the profitability of the corporate sector can be gauged by the tax collection in June 2021.
The tax collection on the dividend income posted 70 per cent growth to Rs1.58 billion in June 2021, compared with Rs929 million in the corresponding month of the last fiscal year.
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