The Supreme Court has ruled that dividend income will remain subject to a 10% final tax and cannot be taxed at the 35% corporate tax rate, dismissing appeals filed by the Federal Board of Revenue (FBR) in a major tax dispute.
The case was filed by several companies, including Saudi Pak Industrial and Agricultural Investment Company, Fauji Foundation, Fauji Fertilizer, and Cap Gas, after they challenged the FBR’s interpretation of the tax law.
The verdict was issued by a two-member bench headed by Chief Justice Yahya Afridi, while Justice Aqeel Ahmed Abbasi authored the detailed judgment.
The dispute involved the interpretation of Sections 5 and 39 of the Income Tax Ordinance, 2001.
The FBR had argued that dividend income should be included in a company’s overall taxable income and taxed at the applicable corporate rate.
However, the companies involved contended that dividend income falls under a separate tax framework and is governed by Section 5, which imposes a 10% final withholding tax.
The Supreme Court upheld the taxpayers’ position and affirmed the earlier ruling of the Islamabad High Court in their favor. The court observed that dividend income constitutes a separate tax category and cannot be treated as ordinary business income.
It ruled that only Section 5 applies to dividend income and that the 10% tax represents the complete and final tax liability.
The court declared the FBR’s attempt to apply the 35% corporate tax rate on dividends legally unsustainable and dismissed all related appeals for lacking merit.
