Govt proposes revisions to tax rates on profit, dividends

June 23, 2025 (MLN): The Federal Government has proposed amendments to the tax rates on profit on debt and dividends through the Finance Bill 2025.

Specifically, the tax rate will remain at 7.5% on dividends paid by Independent Power Producers under agreements such as Implementation Agreements or Power Purchase Agreements, where the amount is reimbursed by CPPA-G.

In the case of mutual funds and Real Estate Investment Trusts (REITs), the previous flat rate of 15% will now be split. REITs will continue to be taxed at 15%, while mutual funds will be subject to two separate rates, 25% and 15%, depending on the proportional source of income from debt securities and equities, respectively.

Furthermore, an additional provision states that the tax rate on dividends received by a company from mutual funds deriving income from profit on debt will be 29%.

Meanwhile, no changes have been made to the taxation of dividends received from a REIT scheme by a Special Purpose Vehicle, which remains exempt.

Similarly, dividends received by other entities from the same REIT scheme will continue to be taxed at 35%.

In addition, the tax rate of 25% will continue to apply to individuals receiving dividends from companies that do not pay tax due to income exemptions or loss carryforwards.

With respect to profit on debt, the existing structure imposes a 15% tax on the yield or profit. However, the amended rate introduces three distinct categories:

First, a 20% tax will apply to the yield or profit paid by a banking company or financial institution on any account or deposit maintained with them.

Second, a 20% tax will also be applicable to the yield or profit on government securities paid to any person other than an individual.

Lastly, for all other cases not covered under these two categories, the existing 15% rate will continue to apply.