KARACHI: Withholding tax collection from development projects rose 9.1 percent to Rs283.15 billion during the last fiscal year of 2017/18 despite cost-cutting vigilance brought spending down, official data revealed.
Withholding tax collection amounted to Rs259.54 billion during the preceding fiscal year, the ministry of finance’s data showed.
Spending under public sector development program fell to Rs1.456 trillion in FY2018 compared to Rs1.577 trillion in FY2017.
Officials said the slip in spending might be due to strict vigilance by various authorities on the public money.
The Federal Board of Revenue (FBR) was expecting large spending from the former government during its last year in office, which was the elections year.
FBR officials attributed the increase in withholding tax collection to increase in tax rates for non-filers and broadening of tax base.
FBR collects withholding tax rate at 0.4 percent under Section 236P of Income Tax Ordinance, 2001 from non-filers of income tax returns. The government introduced the provision, through Finance Act 2015, to compel people having taxable income to declare their income and wealth statements. Withholding tax rate was fixed at 0.6 percent on cash transactions above Rs50,000/day. The rate was, however, reduced to 0.3 percent soon after the introduction. The rate was inched up to 0.4 percent in May.
The previous government, in the budget for the fiscal year of 2018/19, decided to continue the levy and fixed the rate at 0.4 percent instead of 0.6 percent, considering its effectiveness in motivating filing of returns.
FBR collected Rs1.047 trillion in overall withholding tax collection during the last fiscal year as against Rs944 billion a year ago, showing an increase of 10.9 percent.
The collection of tax from contracts remained a major revenue spinner under this head.
A FBR’s report said only nine major components of withholding taxes contributed around 87 percent to the total collection. These included contracts, imports, salary, telephone, dividends, bank interest, cash withdrawal, electricity and exports.
As far as growth is concerned collection from salary grew around 20 percent, followed by contracts (9.1 percent), dividends (16.9 percent), imports (11 percent), cash withdrawal (11.5 percent) and electricity (30.9 percent). The highest contributor in withholding taxes was contracts with 27 percent share, followed by imports (20.9 percent) and salary (12.7 percent).
Further break-up revealed that the share of only two heads of withholding tax: contract and imports was around 48 percent. Addition of withholding tax on salary raised the share of these three items to more than 60 percent of the total withholding taxes.
“More diversification in withholding tax is needed which is possible through finding out new avenues,” FBR’s report added.