Withholding Tax on Dividends in Pakistan

Introduction

Withholding tax on dividends in Pakistan is deducted under Section 150 of the Income Tax Ordinance, 2001.

Dividends are a great way to make money, but in Pakistan, you need to be aware of withholding tax on them. This tax is deducted from the dividends that you receive and goes directly to the government. Knowing about this type of taxation can help you understand how much you’ll get after taxes are taken out.

Section 150 of the Income Tax Ordinance, 2001 is read as given below:

“Every person paying a dividend shall deduct tax from the gross amount of the dividend paid or collect tax from the amount of dividend in at the rate specified in Division I of Part III of the First Schedule.”

Withholding Tax Rates on Dividends Pakistan

The withholding tax on dividends in Pakistan is charged at the rates given below:

Clauses	Description	Rate of Tax
a	Dividends received from Independent Power Producers (IPPS)	7.5%
b	Dividends received from Mutual funds, Real Estate Investment Trusts, and cases other than those mentioned in clauses (a), (c), and (d); mutual funds deriving fifty percent or more income from profit on debt	15%   25%
c	Dividend received by a REIT scheme from Special Purpose Vehicle Dividends received by others from Special Purpose Vehicle	0%       35%
d	Dividend received from a company where no tax is payable by such company, due to the exemption of income or carry forward of business losses	25%

 

The person paying the dividend will withhold income tax from the payment.

For example, an Independent Power Producer (IPP) pays Rs. 100,000 dividend to a shareholder. The IPP will withhold income tax of Rs. 7,500 (100,000*7.5%) and will pay Rs. 92,500 to the shareholders.

The withholding tax on dividends under Income Tax Ordinance, 2001 is a final tax.