Tax collection from salary income plunges by 43pc: State Bank

Tax collection from salary income plunges by 43pc: State Bank

KARACHI: The income tax collection from salary income has witnessed sharp decline of 43 percent during fiscal year 2018/2019 due to significant concession granted in the budget of election year.

State Bank of Pakistan (SBP) in its annual report on State of Pakistan Economy 2018/2019, revealed that withholding income tax fell 43 percent to Rs76.4 billion in 2018/2019 as compared with Rs133.4 billion in the preceding fiscal year.

The overall collection of withholding taxes declined by 8.2 percent to Rs960.7 billion in the fiscal year 2018/2019 as compared with Rs1,047 billion in the preceding fiscal year.

Besides, collection of income tax from salary the collection of withholding tax from telephone also witnessed steep fall of 64 percent. The Federal Board of Revenue (FBR) collected Rs17.2 billion during fiscal year 2018/2019 as compared with Rs47.4 billion in the preceding fiscal year.

The collection of income tax from contracts witnessed 17 percent decline to Rs234.7 billion during the last fiscal year as compared with Rs283 billion in the preceding fiscal year.

The SBP said that the decline in withholding taxes, having a share of nearly 65.0 percent in direct taxes, came from prominent reductions in the collection from salaries, contracts, cash withdrawals, and telephone.

“While collection from salaries took a hit from concessions on income tax granted in the FY19 budget, the decline in PSDP spending lowered the collection from Contracts.”

The composition of direct taxes is quite suboptimal reflecting lack of sufficient tax effort, the SBP said.

The government relies heavily on withholding taxes, which downplays the role of revenue authorities.

Furthermore, when these taxes are treated as final and are passed on to final consumers, they gain properties of indirect taxes. Despite a large tax machinery, comprising regional tax officers, nearly 64.1 percent of the income tax is collected via withholding agents such as banks, telecom companies, utility companies and car dealers.

As for voluntary payments and collection on demand, their contribution is quite minimal. And even within the voluntary payments, around 90 percent collections are made in the form of advance tax; less than 10 percent comes through return filing.

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