Finance Minister Ishaq Dar in his budget speech said that bonus shares are being taxed on receipt of bonus shares the shareholders sell the same and receive cash. Bonus share principally is simply capitalization of retained earnings and not distribution of profit. In the balance sheet certain amount is transferred from reserves to paid-up capital and no cash disbursement is involved.
Recipient shareholder percentage in the company's ownership is not enhanced. The sale of bonus shares reduces his percentage stake and is equivalent to sale of part of his existing shareholding.
Tax on bonus shares is therefore a kind of wealth tax and not income tax.
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