Income of shareholder of company: 10pc tax paid on bonus shares to be ‘final tax’

ISLAMABAD: Ten percent tax paid on bonus shares would be the “final tax”, on the income of the shareholder of the company, arising from issuing of bonus shares.

According to the Finance Act 2023 applicable from July 1, 2023, section (236Z) of the Income Tax Ordinance 2001 deals with the bonus shares issued by companies. Notwithstanding anything contained in any law for the time being in force, every company, issuing bonus shares to the shareholders of the company, shall withhold ten percent of the bonus shares to be issued.

Bonus shares withheld shall only be issued to a shareholder, if the company collects from the shareholder, tax equal to ten percent of the value of the bonus shares issued to the shareholder including bonus share withheld, determined on the basis of day-end price on the first day of closure of books in the case of listed company and the value as prescribed in case of other companies, it said.

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The law said that the tax shall be deposited by the company, within fifteen days of closure of books, whether or not tax has been collected by the company.

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 under this section.

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 issuing of bonus shares, Finance Act 2023 added.

Copyright Business Recorder, 2023