The federal government has proposed to levy a 10 percent withholding tax to encourage payments on bonus shares for listed and non-listed companies.
According to the budget documents available with ProPakistani, the government has proposed that every company, issuing bonus shares to the shareholders of the company, shall withhold 10 percent of the bonus shares in order to help collect tax revenue on dividends.
The document said bonus shares withheld shall only be issued to a shareholder if the company collects from the shareholder a tax equal to 10 percent of the value of the bonus shares including bonus share withheld, determined on the basis of day-end price on the first day of closure of books in the case of the listed company and the value as prescribed in case of other companies.
A company liable to deposit tax under this section shall be entitled to collect and recover the tax deposited from the shareholder, on whose behalf the tax has been deposited, before the issuance of bonus shares.
If a shareholder neither makes payment of tax to the company nor collects its bonus shares, within fifteen days of the date of issuance of bonus shares, the company may proceed to dispose of its bonus shares to the extent it has paid tax on its behalf.
The document revealed that the issuance of bonus shares shall be deemed to be the income of the shareholder and the tax collected by a company under this section or proceeds of the bonus shares disposed of and paid under this section shall be treated to have been paid on behalf of the shareholder.
Tax paid under this section shall be the final tax on the income of the shareholder of the company arising from the issuing of bonus shares, the document added.
What purpose will it achieve? Companies will stop issuing bonus shares. This can only work if they first put tax on reserves and to cover that companies will issue bonus and then bonus will be taxed. Let’s see. Maybe the information which you shared is incomplete…