WHT collection slips 29pc as return filing soars

KARACHI: Collection of withholding tax (WHT) from non-cash banking transactions fell 29 percent during first half of this fiscal as income tax return filing reached record high, officials said on Friday.

“The collection of withholding tax on non-cash banking transactions declined to R3.7 billion during July–December of current fiscal year as compared to Rs5.21 billion in the corresponding half of the last fiscal year,” said sources in Large Taxpayers Unit (LTU) Karachi.

The FBR collects withholding tax at 0.6 percent from person not appearing on Active Taxpayers List (ATL). For showing up on the ATL, a person is required to file annual income tax return of the preceding tax year.

The sources said that banks would provide details of the persons that were making non-cash banking transactions and were not on the ATL by this month. “The details will help identifying those people having taxable income but not on the tax roll,” the sources added.

The government had introduced the withholding tax provision through Finance Act, 2015 and a new Section 236P was inserted to Income Tax Ordinance, 2001. Under this provision 0.6 percent withholding tax was imposed only on non-filers of income tax returns on aggregate transactions of Rs50,000 per day.

The provision was aimed at compelling non-filers into becoming filers of the income tax returns. The purpose of the government to bring taxable income into the system has resulted in record filing of income tax returns.

The income tax return filing increased to a record high of 2.76 million for tax year 2018 by January 12, 2020. The government faced opposition from various quarters after the introduction of Section 236P. Therefore, it reduced the tax rate to 0.3 percent in the same fiscal year of its launch. The reduced rate increased to 0.4 percent in March 2017 and finally it 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 made 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, the income tax return filing was mandatory for appearing on the ATL; however, in the latest arrangement a person will appear on the ATL only if after filing annual return by due date. Alos, after paying the late filing fine a person can enroll his/her name into the ATL.