Tax collection from bank deposits up twofold in five months

KARACHI: Withholding tax collection from profit on bank deposits sharply increased 204 percent to Rs21.6 billion during the first five months of current fiscal year as higher interest rates improved returns on investment, sources said on Saturday.

Withholding tax collection from profit on deposits in banking system amounted to Rs7.1 billion in the corresponding period last fiscal year.

The sources said the Federal Board of Revenue (FBR) initiated examination of incomes following phenomenal increase in earnings from bank deposits.

The sources in FBR said prevailing high rate of interest attracts bank deposits.

The State Bank of Pakistan kept policy rate unchanged at 13.25 percent in the last monetary policy. The policy rate has gradually been increasing since August 2018 when the rate was 7.5 percent.

Deposits in the banking system increased to Rs14.31 trillion by November 2019, 9.48 percent higher when compared with Rs13.07 trillion in the same month of the last year.

The sources said the FBR would obtain information from banks about individuals who maintain huge amount of deposits.

They said the information sharing with the banks has been streamlined following the withdrawal of petitions on data sharing by the banks from Sindh High Court.

Under the tax law, banks are required to provide a list containing particulars of deposits aggregating Rs10 million or more made during the month to tax authorities. Further, banks are also liable to provide a list of individuals receiving profit on debt exceeding Rs500,000 during a year.

Initially, the FBR is inquiring about the specific cases from the banks where its tax offices discovered undisclosed amount on which profit on debt was received.

However, the sources said the banks would provide a bulk of information about depositors to the FBR in shape of withholding statement.

Prior to the current fiscal year, banks were required to provide details of transactions on monthly basis. However, banks are now required to provide details biannually with the amendment introduced into Income Tax Ordinance, 2001.

Therefore, banks provide details of deposits in their withholding statements to be submitted in January 2020.

The sources said the FBR is analysing bank accounts where beneficiary is different than the deposit holders.

They said in such benami accounts the FBR would ask for the source of income in order to reach the people who made money through illegal sources or evaded tax revenue.