Islamabad High Court Allows Mari Energies to Recover Unpaid Taxes from Bonus Shares

Strategic Insights -

The Islamabad High Court has made a significant ruling in favor of Mari Energies Limited, enabling the company to sell bonus shares previously withheld from shareholders to recover unpaid taxes. This decision marks a key development in the implementation of Section 236Z of the Income Tax Ordinance, 2001, which requires companies to withhold tax on bonus shares issued to shareholders. The court's ruling will enable Mari Energies to recover over PKR 3.5 billion in unpaid taxes, as estimated in previous reports.

Key Takeaways:

  • The Islamabad High Court has allowed Mari Energies Limited to sell bonus shares withheld from shareholders to recover unpaid taxes.
  • The court's decision upholds the company's right to recover due tax amounts from shareholders by disposing of the bonus shares they received earlier.
  • The case pertains to the company's massive 800% bonus share issuance and its legal obligation to withhold tax on such issuances under Pakistani tax law.
  • The court directed the Central Depository Company (CDC) to transfer 10% of bonus shares (in the case of tax filers) and 20% (in the case of non-filers) into the company's account.
  • The tax is collected in kind, through a portion of the bonus shares themselves, rather than in cash.
  • The ruling clears the way for Mari Energies to recover over PKR 3.5 billion in unpaid taxes.
  • Shareholders who have already paid their taxes will have the lien on their withheld bonus shares removed, and their full bonus entitlement will be credited to their accounts.
  • The move comes after a legal battle between Mari Energies and several shareholders who had challenged the company's decision to withhold and lien their bonus shares.
  • The IHC's ruling confirms the legality of the FBR's directive and the company's actions under the new tax framework.

Statistics:

  • 10% of bonus shares will be transferred from tax-filers' accounts.
  • 20% of bonus shares will be transferred from non-filers' accounts.
  • Over PKR 3.5 billion in unpaid taxes will be recovered.
  • Section 236Z of the Income Tax Ordinance, 2001, requires companies to withhold tax on bonus shares issued to shareholders.
  • The PSX has been requested to disseminate the IHC's directive and the company's course of action to its members.

Sources:

  • A letter sent to the Pakistan Stock Exchange (PSX) by Mari Energies Limited.
  • Section 236Z of the Income Tax Ordinance, 2001.
  • Finance Act, 2023.
  • Business Recorder, March 2024.