Govt may increase tax on dividend income to 20%

Also likely to levy income tax on companies suffering gross losses.

ISLAMABAD: In yet another anti-business budget proposal, the government is likely to increase the tax on dividend income and force companies to pay income tax, irrespective of the fact that they are incurring gross losses, to generate an additional revenue of Rs35 billion.

According to another corporate sector-related budget proposal, the government may charge advance tax on alternate corporate tax from the new financial year 2016-17, said sources.

The financial implication of these three taxation proposals is estimated to be over Rs35 billion, which will be coughed up by big firms.

Such proposals highlight the inconsistency in the country’s taxation policies that have adversely affected foreign direct investment.

“Finance Minister Ishaq Dar has cleared these proposals for onward presentation to Prime Minister Nawaz Sharif,” a source said, adding Dar would present the budget in the National Assembly on June 3.

Sources said the FBR had proposed that the companies declaring gross losses should be charged a minimum tax of 1% of their total turnover.

Currently, the companies declaring gross losses are exempted from the minimum tax. However, the companies that declared net losses are already liable to pay this tax.

This single move would generate Rs14 billion in additional taxes.

According to estimates, in tax year 2015, as many as 1,159 companies with a turnover of Rs1.4 trillion, declared gross losses.

The FBR proposal says it does not have the capacity to critically evaluate income tax returns of the companies declaring gross losses.

Instead of improving the FBR’s audit capacity, the government is now going to punish the big firms.

Dividend income

The government may increase dividend income tax to 20% for non-filers of income tax returns against the existing 17.5%, said sources.

The proposed new tax on dividend income for return filers is 15%. The proposal is aimed at generating an additional income of about Rs5 billion.

Alternate tax

The government may also start charging advance tax on the alternate corporate tax to raise an additional Rs16 billion next year. The alternate corporate tax itself is a unique tax in the corporate world.

As the name suggests, it is only applicable to companies. A company is required to pay either alternate corporate tax, minimum tax or corporate tax. Until the end of 2013-14, the companies paid either the normal corporate tax or the minimum turnover tax, whichever was higher.

In 2014, the government introduced 17% alternate corporate tax on accounting income, which placed an additional burden on corporate taxpayers, especially those which had huge unabsorbed tax depreciation and prior years’ tax losses.

Published in The Express Tribune, May 24^th, 2016.

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