KARACHI: The rate of tax on profit on debt above Rs36 million shall be treated as normal tax rate, tax officials said on Tuesday.
Sources in Federal Board of Revenue (FBR) said that the tax rates were revised through Finance Act, 2019.
The revised tax rates for profit on debt not exceeding Rs 5 million have be increased from 10 percent to 15 percent, between Rs5 million and Rs25 million tax rates have been increased from 12.5 percent to 17.5 percent and from Rs25 million to Rs36 million tax rates are being increased from 15 percent to 20 percent.
The rate of advance withholding tax on payment of profit on debt has also been enhanced from 10 percent to 15 percent.
Furthermore, the separate rates mentioned above would be applicable for profit on debt up to Rs.36 million and for amounts exceeding Rs36 million the profit on debt will be made part of the total income and taxed at normal rates.
Previously the profit on debt is taxed separately and is not part of the income in normal tax regime.
The tax rates were 10 percent, 12.5 percent and 15 percent for slabs up to five million rupees, between five million to twenty five million rupees and above twenty five million rupees, respectively.
The FBR sources said that due to changes the tax collection under this head registered phenomenal growth during first six months of current fiscal year. The sources estimated that the collection from profit on debt had been increased by around 150 percent during July – December of 2019/2020.
The sources said that persons not appearing on Active Taxpayers List (ATL) are also liable to pay around 30 percent as withholding tax.
The FBR collects profit on debt under Section 7B and Section 151 of Income Tax Ordinance, 2001.
The sources said that high interest rates attracted investment towards deposits of banking system. This factor has also contributed the high growth of tax from profit on debt.