WHT collection on bonds income increases to Rs8.6bln in July-Feb

KARACHI: Struggling apex tax authority has recorded a sharp 21.1 percent growth in revenue from prize bonds in the first eight months of the current fiscal year as propensity of people with undeclared income to invest in the instrument surged with the government tightening noose around non-filers, sources said on Wednesday.

The Federal Board of Revenue (FBR) collected Rs8.65 billion in withholding tax on income from prize bond winnings in the first eight months of the current fiscal year compared with Rs7.14 billion in July-February 2017/18. The increase was aided by rise in various types of bond denominations.

The FBR faced a massive revenue shortfall of Rs237 billion in the July-February period as the collection stood at Rs2.328 trillion as against the assigned target of Rs2.565 trillion. Experts said the authority is heading towards an annual revenue shortfall of Rs300 to Rs350 billion.

Tax rate on winning amount of a prize bond is 15 percent for income tax return filers and 25 percent for non-filers. It is a final tax against the total liability of an individual. Sources said investment in prize bonds is an attractive avenue for individuals having undeclared assets and incomes. The FBR imposed tax to increase revenue from undocumented sector, considering a large volume of investment into the government securities.

Total investment in prize bonds increased 17 percent to Rs930 billion till January compared with Rs794.09 billion in the same month of the last year. The Central Directorate of National Savings (CDNS) issued prize bonds in eight different denominations from Rs100 to Rs40,000.

Sources said the demand of prize bonds sharply increased after the introduction of withholding tax on non-filers when they make non-cash transactions, in fiscal 2015/16.

Tax Reform Commission (TRC) said the prize bonds with high denominations such as Rs25,000 or Rs40,000 should be discontinued and there should be adjustable withholding tax on encashment of prize bonds to avoid the existing abuse and identify non-taxpayers.

The TRC said the prize bonds are used as means of whitening black money. “The person purchases prize bonds and gets hold of the script wherein they tend to get the money whitened up on account of wining of prize through prize bond,” the commission, constituted by the government, said in a report in 2015.

The CDNS launched premium prize bonds of Rs40,000 in March 2017 and it was issued against computerised national identity card. But, prize bonds, even with higher denominations, are still issued to unregistered individuals.

Tax collection from money on prizes, raffle and lottery, however, fell 36 percent to Rs259.22 million in the July-February 2018/19. Tax rate on such prize money is straight 20 percent for both filers and non-filers. Overall collection under the head of prizes registered a 18.1 percent growth to Rs8.91 billion during the first eight months of current fiscal year.