Income tax on undistributed profit reduced to 7.5pc

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ISLAMABAD: The proposed income tax rate of 10 percent on undistributed profit by listed companies has been reduced to 7.5 percent for the tax year 2018.
Presently, 10 percent tax is leviable on every public company other than a scheduled bank or a modaraba that derives profits for a tax year but does not distribute cash dividends within 6 months of the end of the said tax year or distributes dividends such that, after distribution, its reserves are more than 100 percent of its paid up capital.
Exemption from above tax is available for the following:
— a public company which distributes profit equal to either 40 percent of its after tax profits or 50 percent of its paid up capital, whichever is less, within six months of the end of the tax year,
— a company in which not less than 50 percent shares are held by the Government, and
— a company engaged in power generation which qualifies for exemption under Clause (132) of Part I of Second Schedule.
Through Finance Bill 2017, Section 5A of Income Tax Ordinance 2001 is proposed to be substituted with a new section, whereby the present condition for exemption of distribution of dividend of 50 percent of paid up capital is abolished, so as to protect the interest of small investors.
Finance Minister Senator Mohammad Ishaq Dar in his winding up speech for budget 2017/2018 in the parliament said that listed companies the finance bill had proposed 10 percent income tax on 40 percent less undistributed profit.
He said on the recommendations of the stakeholders this rate of tax has been reduced to 7.5 percent.

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