ISLAMABAD: The Federal Board of Revenue (FBR) has decided to deal strictly with corporate companies failing to comply with instructions, prescribed in the Finance Bill 2014-15.
FBR has granted one week to corporate companies either to deposit 5 percent tax on total value of shared bonus out of profit or pay 5percent shares of total amount of dividends given to shareholders.
“FBR Chairman Tariq Bajwa has directed Large Taxpayers Units (LTUs) Chief Commissioners to start legal action against the defaulter companies after one week” a well placed source at FBR informed.
FBR introduced an innovative tax through a legal amendment in Finance Act last year, under which all corporate companies, granted bonus or shared a profit in the form of dividend to share holders are required to pay 5 percent tax on total value of bonus share or deposit 5 percent tax on dividend shares to govt.
The said amendments in the Finance Bill proposed that every person issuing bonus shares to the shareholders of the company shall collect tax at the rate of 5percent of the value of bonus shares determined on the basis of day-end price of the first day of the closure of books. The company issuing the bonus shares shall be required to make arrangements for collection of such tax.
In case of default, the said company shall be liable to pay the tax not so deducted without prejudice to any other liability under the Ordinance. The collected tax shall be treated as final tax on the income of the shareholder of the company.
Similarly, the Finance Bill proposes to insert the definition of Stock Fund which means a collective investment scheme or a mutual fund where the investible funds are invested by way of equity shares in companies to the extent of more than 75percent of the investment.
Further the tax rate on the dividend received by a person from a stock fund is proposed to be taxed at the rate of 12.5 percent for tax year 2015 and onwards, if dividend receipts are less than capital gains.
In case of a company where the dividend received from a collective investment scheme or a mutual fund, other than a stock fund would be subject to tax at the rate of 25percent for tax year 2015 and onwards.
Now ten months have been passed since this law was framed, but either due to the weak enforcement or lesser understanding of the law none of the corporate companies has implemented or acted upon this law.
Soon after the enactment of the Finance Bill, taxpayers contacted the Sindh High Court (SHC) against this amendment and SHC issued a short order granting stay order against this amendment.
FBR pursued the Supreme Court (SC) and SC passed on a judgment binding the implementation of stay order issued by SHC to the issuance of detailed judgment on the said case in favor of either party till January 15, 2015.
In the meantime, the FBR opened account with Central Depository Company of Pakistan Limited (CDC) to facilitate the corporate companies to deposit 5percent share of dividend, but no one company deposited share. However, more than 12 companies have issued bonus.
CDC is the only depository in Pakistan. The Company started operations in September 1997. CDC is the sole entity handling the electronic (paperless) settlement of transactions carried out at all three stock exchanges of the country hat is Central Depository System
The main function of CDC is to operate and maintain the Central Depository System (CDS), drawing guidance from a well-defined legal framework laid down by Securities & Exchange Commission of Pakistan (SECP). Installed by an IBM-led consortium, CDS is an electronic book-entry system used to record and maintain securities and to register the transfer of securities.
Now FBR is going to take strict action, if companies fail to transfer shares at CDC account of FBR in one week. These companies will be declared defaulter and legal procedures will be initiated.
Majority of cases are related to LTUs, therefore Chairman FBR has asked LTU Chiefs to take strict action against tax defaulter companies. These companies have been given short time for reconciliation of their accounts.