Tax collection on non-cash transactions plunges 50pc

KARACHI: The collection of withholding tax (WHT) on non-cash banking transactions plunged 50 percent in May 2020, largely owing to slowdown in business activities and long Eid-ul-Fitr holidays, officials said on Friday.

Large Taxpayers Unit (LTU) Karachi data showed the collection of withholding tax on such transactions dropped to Rs518 million in May 2020 from Rs1.03 billion in the same month of the last year.

The officials said business activities were sluggish due to lockdown during the month, while the number of transactions was also lower due to Eid holidays from May 22 to 27.

They said during the month people mostly preferred cash transactions due to Eid festival, adding, elimination of withholding tax on cash transactions for filers also encouraged cash-based transactions.

According to State Bank of Pakistan (SBP) total deposits of banking system fell to Rs14.475 trillion in April 2020 as compared with a record high of Rs15.126 trillion in March 2020.

The overall collection of withholding tax from non-cash banking transaction also decreased 35 percent to Rs6.93 billion during July–May 2019/2020 as compared to Rs10.677 billion in the corresponding period of the last fiscal year.

The decline in collection, besides other factors, has also been attributed to measures to document the economy which resulted in an increase in the income tax return filing.

The withholding tax on non-cash transactions is applicable at 0.6 percent only on those persons, who do not appear on Active Taxpayers List (ATL).

According to updated ATL for tax year 2019, the FBR received around 120,000 income tax returns during March 1-May 30 period this year.

These returns were filed after due date for tax year 2019. The government introduced the withholding tax provision through Finance Act, 2015 and a new Section 236P was inserted into 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/day.