WHT collection from banking transactions falls to Rs9.34 billion in July-April

KARACHI: Withholding tax collection from non-cash banking transactions by non-filers declined 11 percent to Rs9.34 billion during the first 10 months of the current fiscal year of 2017/18 as number of returns filers continued to increase due to the government’s reforms.

Official data showed on Monday that withholding tax collection from non-cash banking transactions fell from Rs10.46 billion in the corresponding period of the last fiscal year.

The Federal Board of Revenue (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, which is applicable till June 30.

The 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.

Officials at Large Taxpayers Unit (LTU) Karachi said there has been a significant increase in returns filing after the government extended the scope of withholding tax on banking transactions.

The filing of annual income tax returns increased to 1.4 million as per the active taxpayers list (ATL) 2017, updated up to May 20. The returns filing surged 22 percent from 1.15 million recorded till the same day a year ago.

The LTU officials said the FBR is monitoring the banks to identify other reasons behind the decline of withholding tax under the head.

A tax official said the banks started sharing the withholding deduction data with the FBR for examining account holders and their taxable income.

The official also said the government had taken some stringent measures in the new budget to increase returns filing. It is mandatory for individuals to file returns prior to buy property or vehicle.

The official said the measures would further reduce the withholding tax collection from banking transactions. “However, the measures will increase the returns filing,” the official added.

An estimate said annual sales of domestic and imported vehicles stand at around 350,000 units, while transactions of around 600,000 to 700,000 properties take place a year. Tax officials expect return filing number to exceed two million for tax year 2017 before the launch of new ATL on March 1, 2019.