KARACHI: The collection of withholding tax from profit on bank deposits registered unprecedented growth of 194 percent during first quarter of first fiscal year as the tax rates increased by 100 percent for persons not on the Active Taxpayers List (ATL).
Sources in Regional Tax Office (RTO) –II Karachi said that the withholding tax collection under Section 151(1)(b) of Income Tax Ordinance, 2001 increased to Rs14.56 billion during first quarter (July – September) of fiscal year 2019/2020 as compared with Rs4.95 billion in the corresponding period of the last fiscal year.
The sources explained that under Section 151(1)(b) withholding tax is collected on profit on debt paid by banking companies or financial institutions on account or deposit maintained.
Every banking company is required to collect 10 percent of the gross yield/profit paid up to Rs500,000 or 15 percent of the gross yield / profit paid exceeding amount Rs500,000 at the time the profit on debt is credited to the account of the recipient or is actually paid, whichever is earlier.
The sources said that it is mandatory for the banks to collect double the amount of withholding tax from those persons receiving profit on debt but not on the Active Taxpayers List (ATL).
The government through Finance Act, 2019 introduced 10th Schedule to the Income Tax Ordinance, 2001 to enhance the rate of withholding tax by 100 percent on certain transactions.
The measure has been taken to force persons making large transactions and paying withholding tax on such transactions but remained outside the tax net.
The sources said that after the implementation of the 10th Schedule the pace of return filing for Tax Year 2018 increased in order to avoid paying 100 percent higher rate of withholding tax.
According to ATL updated October 21, 2019 the number of return filers were increased to 2.64 million for tax year 2018 as compared with 1.84 million returns received for tax year 2017.