FBR collects Rs2.4bln revenue on govt papers

KARACHI: The Federal Board of Revenue (FBR) pulled in Rs2.4 billion as income tax from investment in government securities during the first quarter of the current fiscal year of 2020/21, significantly up 75 percent from Rs1.36 billion in the corresponding period a year earlier, official data showed.

Banks are risk-aversive towards the private sector, but they are more prone to lending for reducing gap in revenue and expenditures.

The government borrowed Rs2.5 trillion from banks during the last fiscal year. It borrowed another Rs505 billion during the first quarter of the current fiscal year.

The government borrows for budget financing through auction of market treasury bills / Pakistan Investment Bond at the rate near to the benchmark policy rate announced by the State Bank of Pakistan (SBP).

Banks earned significant profits due to higher interest rate during the past fiscal year. However, the SBP reduced the interest rates sharply to support the lockdown-hit businesses and the economy.

The policy rate remained at 13.25 percent till March. The central bank in its monetary policy in March announced to reduce the policy rate to facilitate businesses and borrowers following the coronavirus lockdown almost halted business and commercial activities. The SBP eased monetary stance by 625 basis points to the existing 7 percent.

Sources in the Large Taxpayers Office Karachi said the existing policy rate would adversely affect the revenue collection from investment in government securities.

Another reason for surge in tax collection on investment in government securities was an increase in tax rate for banks on profit earned from the securities.

The government imposed 37.5 percent income tax on banks for making profits on their investment in government papers, through the Finance Act 2019.

As per interpretation of the FBR, the profit of banking companies from government securities – which is in excess of 20 percent of total profit before tax – is taxed separately at the rate of 37.5 percent.

The sources said the income tax collection on bank deposits sharply increased 452 percent to Rs306 million during the first quarter of the current fiscal year. That was compared with Rs55 million.

Amid lockdown, people opted to keep their funds in bank accounts, which resulted in all-time high bank deposits. The bank deposits reached a record level of Rs16.9 trillion by September-end.