Withholding tax collection from non-filers down 18pc

KARACHI: The collection of tax on banking transactions carried out by non-filers has dropped by 18 percent in October 2017 owing to a significant rise in the number of income tax returns received by the revenue department, sources said on Tuesday.

“On the other hand collection on non-cash transactions declined 17.99 percent to Rs825 million compared to Rs1,006 million in the same month last year,” an official at Large Taxpayers Unit (LTU) Karachi said, citing the latest data.

“The collection went down because more and more non-compliant taxpayers have started filing annual returns.” The official also pointed out that income tax returns in tax year 2016 increased to 1.33 million compared to 1.074 million a year earlier, up by 24 percent. The Federal Board of Revenue (FBR) had introduced Section 236P to Income Tax Ordinance, 2001 through Finance Act, 2005, so that banks could collect withholding tax on non-cash transactions made by non-filers only.

As a result, the official said, those who make large banking transactions on regular basis, started filing returns to save themselves from taking hits that could have been avoided by simply becoming filers. The LTU Karachi had collected Rs12.9 billion during fiscal year 2015/2016 from non-cash banking transactions made by non-filers.

The official said the unit was anticipating it to fall further in the current fiscal year as the collection under this head has already shrunk to Rs12.5 billion in the fiscal year 2016-17. “The LTU collected Rs3.39 billion during July–October 2017-18 against Rs3.76 billion during the last fiscal year, which shows a decline by 10 percent in the collection,” the source said.

The official said another reason for this fall was a sharp rise in cash economy coupled with heavy investment in prize bonds. Data released by State Bank of Pakistan (SBP) shows investments in the prize bonds -of all denominations- jumped to Rs744.2 billion by end of June 2017 compared to Rs654 billion in July 2016, a significant increase of 13.76 percent.

Interestingly, investments in Rs40,000 and Rs25,000 denomination prize bonds shot up to 26.4 percent and 18 percent respectively, during the period under review. The sources also revealed the tax departments were taking from the banks the details of those persons, who had made such transactions during the last fiscal year.

“Besides, exercises are also being conducted to determine the modes of payment regarding sale/purchase transactions among retailers, wholesalers, distributors, and manufacturers so that they could be brought under the tax net,” the sources added.