Non-cash bank transactions add Rs1.75bln to FBR’s Q1 revenue collection

KARACHI: The Federal Board of Revenue (FBR) collected Rs1.75 billion of withholding tax revenue from non-cash banking transactions in the first quarter of the current fiscal year, down three percent year-on-year as returns filing compliance is saving taxpayers from the punitive taxation, official data showed on Friday.

The FBR raked in Rs1.8 billion in the corresponding quarter of the last fiscal year. The withholding tax has been imposed on individuals who, while making banking transactions other than cash, have not filed annual income tax returns and are not on the active taxpayers list (ATL).

The withholding tax on non-cash banking transactions is applicable at 0.6 percent only on taxpayers, who do not appear on the ATL. The number of return filers for the tax year 2019 increased to almost 2.89 million.

The ATL for tax year will remain applicable till February 28 next year for the purpose of deduction of withholding tax under various provisions of the Income Tax Ordinance 2001. The number of return filers in tax year 2018 was around 2.9 million.

The government introduced the withholding tax provision through the Finance Act 2015 and a new section 236P was inserted into the Income Tax Ordinance 2001.

The provision was aimed at increasing the burden on individuals not filing income tax returns. However, the collection of withholding tax on non-cash banking transactions has posted an increase of 37 percent during September owing to significant increase in bank deposits.

The collection under the head was 703 million in September as compared with Rs513 million in the same month of the last year. Banking deposits have reached over a decade high of Rs16.5 trillion by the end of September due to growing remittances and lockdown-led savings. Deposits of banks grew 18 percent year-on-year and one percent month-on-month by the end of September. The deposits rose 13 percent year-to-date.

“Growth in deposits has been fueled by higher remittances, while lack of business activity due to COVID-19 (cash-based) may have also resulted in increase in bank deposits,” said Fawad Basir, an analyst at Topline Research. Remittances rose 15 percent year-on-year in dollar terms and 27 percent year-on-year in rupee terms.

“We expect deposit growth in the range of 12-14 percent during 2020 versus historical 3-year average growth of 11 percent.”