The Federal Board of Revenue (FBR) in Pakistan has reported a substantial collection of Rs138 billion as income tax from banking interest and returns from government securities.
Official documents reveal that the FBR’s collection from profit on debt increased by a significant 115 percent during the first half (July-December) of the current fiscal year 2022-2023.
READ MORE: FBR presents tax proposals for budget 2023-2024 in briefing to finance minister
Comparatively, the revenue authority had collected Rs65.5 billion during the same period in the preceding fiscal year. This increase in withholding income tax (WHT) collection from bank interest and securities can be attributed to two primary factors.
Firstly, the withdrawal of the exemption of reduced rate benefit on investment in federal government securities played a significant role. Previously, profit on debt for all individuals other than banking companies was taxed at a rate of 15 percent. However, the Finance Act 2022 changed this provision, and the 15 percent rate now applies only to individuals whose profit does not exceed Rs 5 million. For those not on the Active Taxpayer List (ATL), the rate is doubled. The rise in interest rates also contributed to higher returns on bank deposits, government securities, and national saving certificates, thereby aiding WHT collections.
READ MORE: FBR Collects Rs2.23 Billion as Capital Value Tax on Foreign Assets
Secondly, the expansion of taxable services, such as REIT management services and the National Clearing Company of Pakistan Limited, led to increased WHT collection from contracts. Furthermore, the sale of goods or services, including edible oils, rice, transport services, freight forwarding services, air cargo services, courier services, and others, resulted in higher WHT collections due to inflationary spillovers.
The collection of withholding tax from electric bills also witnessed growth due to the rise in the per-unit cost of electricity. Additionally, to broaden the tax net, retailers and certain service providers are now required to pay a fixed income tax through their electricity bills.
READ MORE: Lady Officer of Pakistan Customs Service Dismissed for Unauthorized Absence
The budget for the current fiscal year also saw revisions in progressive rates for income tax slabs. While the number of slabs was reduced from 12 to 7, salaried individuals with taxable income close to the upper limit of the middle slab (Rs 2.4 million to Rs 3.5 million) or exceeding Rs 3.6 million experienced an increase in their tax liability compared to the previous fiscal year.
Moreover, the salaries of government officials and employees were raised in FY23, leading to an increase in taxable income and subsequent tax liabilities.
Furthermore, the withholding tax on the sale, purchase, or transfer of immovable property was increased from 1 percent to 2 percent. This tax is now applicable irrespective of the holding period, and for purchasers not on the ATL, it has increased by 250 percent. These measures have resulted in higher WHT collections from property transactions.
READ MORE: LTO Karachi posts 24% growth in tax collection for July – April 2022-2023
Lastly, WHT collections from imports received a boost from increased tax rates, which rose from 2 percent to 3.5 percent. Importers not on the ATL face double the tax rate.
The significant increase in income tax collection from banking interest and returns on government securities reflects the FBR’s efforts to enhance revenue generation. These measures, coupled with the expansion of taxable services, revisions in income tax slabs, and changes in withholding tax rates, have contributed to the substantial increase in WHT collections.