ISLAMABAD: Withdrawal of tax on banking transactions has caused a loss of over Rs31 billion to the Federal Board of Revenue (FBR).
The FBR was collecting withholding tax under Section 231A and Section 236P of the Income Tax Ordinance, 2001. However, the both the sections were deleted through Finance Act, 2021 making FBR unable to collect tax under these heads from July 01, 2021.
The FBR collected Rs31.50 billion as withholding tax collection from these two provisions during fiscal year 2020-2021.
The collection of withholding tax under Section 231A of the Income Tax Ordinance, 2001 was Rs15.14 billion during fiscal year 2020-2021. Meanwhile under Section 231AA of the ordinance, the authorities collected Rs613 during the fiscal year under review.
The FBR collected Rs15.72 billion as withholding tax under Section 236P of the Income Tax Ordinance, 2001 during fiscal year 2020-2021.
The country introduced these provisions of the Ordinance with aim to generate revenue considering the large size of undocumented economy.
The tax collected under these heads were adjustable, which meant persons filing their annual income tax returns were entitled to get refund of the amount paid as withholding tax on banking transactions.
The purpose of the levy of the tax was also to encourage people in filing their annual income tax returns.
Several quarters were against the tax because the tax authorities were very much reluctant in sanctioning refunds. However, on the other side, the tax authorities were generating sizeable revenue from persons not on the tax net.
There was deterrence against black money in the system. However, after removal of withholding tax on banking transactions many people would take sigh of relief, which can be witnessed in staggering rise in banking deposits.
The deposits of the banking system surged by about 20 per cent after the withdrawal of the withholding tax. The total deposits of the banking system increased to Rs22.47 trillion by end of December 2022 when compared with Rs18.84 trillion by July 2021.
The government is considering to re-impose the withholding tax on banking transactions as reportedly the International Monetary Fund (IMF) is asking the country to take measures for additional revenue generation.