What is the tax rate on dividends in tax year 2027, and why do some companies' dividends get a different rate?

A cash dividend from a Pakistani company is taxed before it reaches your bank account. The company deducts the tax, and for most individual shareholders that deduction is the full tax on the dividend. The rates below are from the Income Tax Ordinance, 2001 as amended to 30 June 2026, so they apply to dividends received in tax year 2027 (1 July 2026 to 30 June 2027).

What does the law say?

Two provisions work together. Section 5 imposes a tax on every person who receives a dividend from a company, at the rate in Division III of Part I of the First Schedule, computed on the gross dividend. Section 150 makes every person paying a dividend deduct tax “from the gross amount of the dividend paid” at the rate in Division I of Part III. Both Divisions set the same rates:

Clause	Dividend	Rate
(a)	Paid by an Independent Power Producer, where the dividend is a pass through item under an Implementation, Power Purchase or Energy Purchase Agreement and is required to be reimbursed by CPPA-G or its predecessor or successor	7.5%
(b)	Real Estate Investment Trust, and all cases not covered by (a), (ba), (c) and (d)	15%
(ba)	Mutual funds, depending on the fund’s income from debt securities and from equities	25% and 15%
(c)	From a Special Purpose Vehicle under the REIT Regulations, 2015	0% to a REIT scheme, 35% to others
(d)	From a company with no tax payable because of exempt income, carried-forward business losses or tax credits	25%

For an ordinary listed or unlisted company that pays its own tax, clause (b) applies and the rate is 15%.

Why do some companies’ dividends get a different rate?

The rate follows the source of the dividend, not the shareholder’s income.

Clause (d), 25%. A dividend is usually paid out of profit that has already borne company tax. Clause (d) applies “in case of a person receiving dividend from a company where no tax payable by such company, due to exemption of income or carry forward of business losses under Part VIII of Chapter III or claim of tax credits under Part X of Chapter III”. The higher shareholder rate applies because the profit was not taxed in the company’s hands. The clause does not say how to treat a company that paid some tax, but less than normal, after partial loss set-off or credits.

Clause (a), 7.5%. This lower rate is limited to Independent Power Producer dividends that are a pass through item under the named agreements and that CPPA-G must reimburse. Holding shares in a power company does not by itself bring a dividend under clause (a).

Clause (c), REIT special purpose vehicles. A dividend from an SPV is 0% when a REIT scheme receives it and 35% for any other recipient.

Clause (ba), mutual funds. A fund’s dividend is split: the part matching income from debt securities is taxed at 25%, and the part matching equities at 15%. Where the recipient is a corporate entity, the debt component is taxed at 29%. The mutual fund page covers this in detail.

How does it work in practice?

The paying company deducts on the gross dividend when it pays. You receive the net amount. Section 8 makes the section 5 tax a final tax, so the dividend is not added to your salary or business income and no expense is deducted from it. The tax deducted at source discharges your liability to the extent it was deducted.

Worked example (illustrative figures)

Bilal, a textile trader in Faisalabad on the active taxpayers’ list, receives three cash dividends in tax year 2027:

1. A cement company that paid tax on its profits. Gross dividend Rs. 300,000, clause (b).

• Rs. 300,000 x 15% = Rs. 45,000; he receives Rs. 255,000.

2. A company with no tax payable because brought-forward losses absorbed its income. Gross dividend Rs. 100,000, clause (d).

• Rs. 100,000 x 25% = Rs. 25,000; he receives Rs. 75,000.

3. A qualifying IPP pass-through dividend. Gross dividend Rs. 200,000, clause (a).

• Rs. 200,000 x 7.5% = Rs. 15,000; he receives Rs. 185,000.

Total gross dividends: Rs. 600,000. Total tax: Rs. 45,000 + Rs. 25,000 + Rs. 15,000 = Rs. 85,000.

What if I am not on the active taxpayers’ list?

Rule 1 of the Tenth Schedule increases the deduction rate by 100% of the normal rate for a person not appearing in the active taxpayers’ list, so 15% becomes 30%. The non-filer page sets out every category and how the excess is adjusted.

Common mistakes

• Assuming every dividend is 15%. Clauses (a), (ba), (c) and (d) set different rates.
• Blaming your own tax status for a 25% deduction. Clause (d) turns on the paying company’s tax position.
• Computing tax on the net dividend. Section 5(2) and section 150 both use the gross amount.
• Adding the dividend to your slab income. Section 8 keeps it out of your other income.

What to check in the official text

Read sections 5, 8 and 150, and Division III of Part I and Division I of Part III of the First Schedule, in the official PDF. If a company deducted 25%, check its annual report or dividend notice for the reason. For a power company, confirm whether the dividend is a pass through item reimbursed by CPPA-G before relying on clause (a).