Govt defers its plan to impose tax on companies’ reserves in next year’s budget

The Federal government has decided to defer its plan of imposing an advance tax on the undistributed reserves of both listed and unlisted companies.

Sources close to the development of the budget preparations revealed that in a recent meeting related to next year’s budget, the Prime Minister has directed the Finance minister and Federal Board of Revenue to put the plan to impose advance tax on the undistributed reserves of both listed and unlisted companies on hold.

Business men have strongly objected to the proposals prepared by Ashfaq Tola, Minister of State and the Chairman of Reforms & Resource Mobilization Commission.

They are of the view that they are already paying huge taxes, and such taxes will put further burden on them and their already vulnerable businesses.

The Ashfaq Tola led Commission, in its interim report proposed the Finance minister to impose advance tax on the undistributed reserves of both listed and unlisted companies.

For other than listed companies, a tax rate of 7.5% has been proposed whereas, for listed companies a tax rate of 5% has been proposed.

This tax shall be adjustable, for the shareholders, against the tax on actual dividend distribution made by the Company in the future. The concept of advance tax on dividends already exists in the Ordinance for CFCs.

Ashfaq Tola has shared with the Finance minister that the reserves of Companies, that have not paid dividends in the last 3 years, stand at Rs 2808 billion and the government can collect Rs 140 billion with just 5% tax on listed companies.

Similarly, based on FBR data, Tola claims that companies in totality have Rs 5442 billion reserves which include the Rs 2808 billion reserves of listed companies.

For the companies that are not listed, Tola proposed 7.5% tax on non listed companies which will generate Rs 197 billion tax.