Withholding tax collection on non-cash bank transactions falls 26pc

KARACHI: The Federal Board of Revenue’s (FBR) withholding tax collection from non-cash banking transactions fell 26 percent to Rs3.01 billion during the first five months of the current fiscal, as annual income tax return filing increased to record high, officials said on Thursday.

Tax collection form non-cash banking transactions declined to Rs3.01 billion during July-November 2019/20, compared with Rs4.09 billion in the same period of the last fiscal year, officials in the Large Taxpayers Unit (LTU) Karachi said.

The FBR collects withholding tax at 0.6 percent from an individual whose name does not appear on the Active Taxpayers List (ATL). For appearance on the ATL, a person is required to file annual income tax return of the preceding tax year.

Number of income tax filers has reached a record high at 2.71 million for the tax year, which has resulted in a decline in the collection of withholding tax from non-cash transactions, the officials explained.

Through Finance Act, 2015 a Section 236P was inserted to Income Tax Ordinance, 2001 under which 0.6 percent withholding tax was imposed only on non-filers of income tax returns on aggregate transactions of Rs50,000/day.

The government reduced the tax rate to 0.3 percent in the same fiscal year after protest from stakeholders. The reduced rate increased to 0.4 percent in March 2017 and finally this rate was made part of the statute through Finance Act, 2018.

However, the present government through Finance Supplementary (Amendment) Act, 2018 in October 2018 restored the tax rate to 0.6 percent in order to make transactions costlier for non-compliant taxpayers.

Through Finance Act, 2019 a new tenth schedule was introduced to the ordinance, under which withholding tax would be collected form persons not appearing on the ATL.

Previously, income tax return filing was mandatory for appearing on the ATL. But in the latest arrangement, a person would only appear on the ATL if they filed annual return by the due date.

However, after paying late filing fine, a person could enrol their name to the ATL. Officials said that banks would provide details of persons making non-cash banking transactions and not on the ATL in January 2020.

The details would help identify individuals who having taxable income, but were not on the tax roll, officials added.