KARACHI, April 24, 2025 — The Federal Board of Revenue (FBR) has experienced a sharp decline in income tax collection from profits on bank deposits in March 2025, with receipts plunging by 54% compared to the same month last year.
This drop in collection is directly attributed to the significant reduction in interest rates announced by the State Bank of Pakistan (SBP).
According to sources at the Large Taxpayers Office (LTO) Karachi, the income tax collection from bank deposit profits fell to Rs2.50 billion in March 2025, a sharp contrast to Rs5.42 billion collected in March 2024. This steep fall highlights the impact of the SBP’s monetary easing policy, which saw the benchmark interest rate slashed from a peak of 22% to 12% during the ongoing fiscal year.
While the overall volume of bank deposits has reached a historic high of Rs31.63 trillion by March 2025, the declining interest rates have eroded the profit margins for depositors. As a result, the taxable income generated from these deposits has significantly reduced, leading to a corresponding drop in tax collection.
Despite the sharp monthly decline, cumulative collection figures for the first nine months (July–March) of the current fiscal year show modest growth. The collection of income tax on bank deposit profits rose by 2%, reaching Rs81 billion, up from Rs79 billion during the same period in the previous fiscal year. This marginal increase was supported by strong collection in earlier months when interest rates were still elevated.
Experts point out that although bank deposits remain an attractive and safe investment vehicle, the decline in profit rates has directly impacted government revenue from this sector. With lower returns discouraging savings in interest-bearing accounts, tax collection on bank deposits may continue to face pressure if interest rates remain subdued.
Authorities are now closely monitoring this trend, as the reduced collection from bank deposits could affect broader fiscal planning and revenue projections for the remainder of the fiscal year.