ISLAMABAD: The Supreme Court of Pakistan has upheld the Islamabad High Court’s ruling that dividend income is subject to a final withholding tax of 10%, rejecting the Federal Board of Revenue’s (FBR) attempt to levy a 35% corporate tax on such income.
A two-member bench headed by Chief Justice Yahya Afridi, with Justice Aqeel Ahmed Abbasi authoring the judgment, dismissed all civil petitions filed by the FBR and refused leave to appeal.
The court ruled that dividend income falls exclusively under Section 5 of the Income Tax Ordinance, 2001, and cannot be taxed under Section 39 as ordinary income. It held that the 10% withholding tax constitutes the final tax liability on dividend income.
The FBR had argued that companies receiving dividend income should also pay the standard 35% corporate tax. However, the court rejected this interpretation, stating that dividends form a separate tax block and cannot be treated as general taxable income.
The Supreme Court declared the FBR’s position legally untenable and affirmed that the existing tax regime for dividend income remains applicable.
The case was brought by several companies, including Saudi Pak Industrial and Agricultural Investment Company, Fauji Foundation, Fauji Fertilizer, and KAPCO Gas, which had challenged the FBR’s tax demand.
