KARACHI: The Federal Board of Revenue (FBR) saw income tax collection from profit on bank deposits rise 15 percent to Rs32 billion during the first half of the current fiscal year of 2020/21, as investors preferred to keep their savings in the banking system amid the
coronavirus turmoil, sources said Saturday.
The Regional Tax Office (RTO) – I Karachi, responsible to collect the taxes on deposit yields, recorded Rs28 billion in revenue collection during the corresponding period a year earlier.
RTO Karachi sources said the prime reason of growth was uncertainty related to coronavirus infection and people with money acted cautiously and contained expenditures. Although the lockdown was relaxed in the middle of last year, its impact was devastating for the already ailing economy.
During the coronavirus lockdown period, all the commercial and industrial activities came to halt causing low opportunities for investment, according to the sources. The economic growth contracted 0.4 percent during the last fiscal year. It is expected to recover 1.5 to 2 percent this fiscal year.
The deposits of the banking system hit record high at Rs17.8 trillion as of December 31, 2020. Previously, the banking deposits reached an all-time high of Rs16.8 trillion as of September 30, 2020, according to data released by the State Bank of Pakistan.
Interestingly, the deposits and income tax collection posted an increase despite reduction in key policy rate during the period. The interest rates were slashed 625 basis points cumulatively from 13.25 percent to 7 percent in a short span of time from mid-March to June last year.
On Friday, the State Bank of Pakistan, however, decided to keep the policy rate unchanged at 7 percent for the third time. The sources said on a monthly basis the revenue collection witnessed contraction in growth following lifting of the lockdown by the government to allow commercial and industrial activities.
They said in coming months the income tax collection would further increase considering the record high of the banking deposits. The collection of income tax from profit on banking deposits posted three percent growth to Rs4.1 billion in December.
That was compared with Rs4 billion in the same month of the last year. The income tax rate is 10 percent for annual profit less than Rs500,000 and above this amount the rate has been prescribed at 15 percent. Further, if the profit recipient is not on the active taxpayers list then the tax rate is 100 percent higher.
