Are bonus shares taxed in Pakistan, even though no cash is received?

Bonus shares are taxed in Pakistan even though no cash changes hands. Section 236Z of the Income Tax Ordinance, 2001, as amended to 30 June 2026, treats the issue itself as income and makes the issuing company collect the tax before it hands over the full allotment.

What does the law say?

Section 236Z was inserted by the Finance Act, 2023. Its seven sub-sections work together:

1. Withholding of shares. Sub-section (1): every company “issuing bonus shares to the shareholders of the company, shall withhold ten percent of the bonus shares to be issued.”
2. Tax to be collected. Sub-section (2): the withheld shares are issued only once the company collects “tax equal to ten percent of the value of the bonus shares issued to the shareholder including bonus share withheld”. For a listed company the value is the “day-end price on the first day of closure of books”. For other companies it is “the value as prescribed”.
3. Company deposits first. Sub-section (3): the company deposits the tax within fifteen days of closure of books, “whether or not tax has been collected”.
4. Recovery. Sub-section (4): the company may recover the deposited tax from the shareholder before issuing the bonus shares.
5. Sale if unpaid. Sub-section (5): if the shareholder neither pays nor collects the bonus shares within fifteen days of issue, the company “may proceed to dispose of its bonus shares to the extent it has paid tax on its behalf”.
6. Deemed income. Sub-section (6): “Issuance of bonus shares shall be deemed to be the income of the shareholder”.
7. Final tax. Sub-section (7): “Tax paid under this section shall be final tax on the income of the shareholder of the company arising from issuing of bonus shares.”

Section 39(1)(lb), also inserted by the Finance Act, 2023, lists “income arising to the shareholder of a company, from the issuance of bonus shares” under the head Income from Other Sources.

How does it work in practice?

The company deals with the tax through the bonus issue itself. It sets aside one tenth of each shareholder’s bonus shares, pays the tax to the government within fifteen days of book closure, and then asks the shareholder to reimburse it. Once the shareholder pays, the withheld shares are released. If the shareholder does not respond within fifteen days of the issue, the company may sell enough of the withheld shares to cover the tax it paid.

Because the tax equals ten percent of the value of all the bonus shares, and ten percent of the shares are withheld, the withheld shares are worth roughly the amount of tax due at the valuation price. Their market value on the day the company sells them may be different.

Worked example (illustrative figures)

Imran, a pharmacist in Multan, holds 1,000 shares of a listed company. The company announces a 20% bonus issue. The day-end price on the first day of closure of books is Rs. 150.

• Bonus shares allotted: 1,000 x 20% = 200 shares.
• Value of the bonus shares, including those withheld: 200 x Rs. 150 = Rs. 30,000.
• Tax under section 236Z(2): Rs. 30,000 x 10% = Rs. 3,000.
• Shares withheld under section 236Z(1): 200 x 10% = 20 shares, valued at 20 x Rs. 150 = Rs. 3,000.

Imran receives 180 bonus shares straight away. If he pays Rs. 3,000 to the company, the remaining 20 shares are released. If he neither pays nor collects them within fifteen days of the issue, the company may sell the 20 withheld shares to recover the Rs. 3,000 it has already deposited.

Is the tax final, or do I pay again in my return?

It is final. Section 169(1)(b) lists “sub-section (7) of section 236Z” among the provisions whose tax is final. Where section 169 applies, “the income shall not be chargeable to tax under any head of income in computing the taxable income of the person”, no expenditure is deductible against it, and the tax is not reduced by any tax credit. The bonus shares are not added to your salary or business income.

What if the company is not listed?

Section 236Z(2) values bonus shares of an unlisted company at “the value as prescribed”. The Income Tax Rules, 2002 held in this corpus are amended only to 24 November 2023. They contain rule 231G on valuing bonus shares of a company not quoted on a stock exchange, but that rule is framed for section 236N, which has since been omitted. The corpus does not show whether rule 231G, or a newer rule, now applies to section 236Z. Check the current rules before relying on a value.

Common mistakes

• Thinking no tax applies because no cash was received. Section 236Z(6) deems the issue to be income.
• Assuming the old 5% rate. Former section 236M withheld five percent for listed companies. It was omitted by the Finance Act, 2018. Section 236Z now uses ten percent.
• Confusing bonus shares with dividends. Cash dividends are taxed under sections 5 and 150. Bonus shares have their own regime in section 236Z, and the words covering bonus shares were removed from section 150 by the Finance Act, 2002.
• Ignoring the fifteen-day window. After fifteen days from issue, the company may sell withheld shares under sub-section (5).

What to check in the official text

Read section 236Z in full, section 169(1)(b) and section 39(1)(lb) in the official PDF. For an unlisted company, check which valuation rule is currently prescribed. The cost of bonus shares for any later capital gains calculation is a separate question not answered by section 236Z.