Federal Board of Revenue (FBR) has generated handsome revenues from banks and banks customers on the account of withholding taxes which surged by over 120% on a year-on-year basis in the financial year 2019-20.
According to Revenue Division Year Book 2019-20, the tax administration collected overall tax income of Rs. 128.1 billion from investors of debt securities and banks customers who invested in saving products/ accounts in the banks.
Last year, the revenue authority collected tax of Rs. 58.1 billion from the same avenues. In the first half of the outgoing financial year, banks succeeded in attracting customers with double-digit profit rates through saving accounts and term deposits.
Further, investment of financial institutions through government papers have also increased during the period due to high profit rates offered by the central bank.
According to SBP, the deposits of the banking sector surged to over Rs. 16 trillion whereas the investment in government securities also surged to over Rs. 11 trillion. These factors have not only enhanced the profit margins of the investors and depositors but also gave impetus growth to tax revenues.
However, the withholding tax on cash withdrawal has reduced by over 51% to Rs. 15.1 billion in the said financial year. The decline in the business activities in the second half besides the use of electronic banking has reduced the revenues under cash withdrawal.
The withholding tax contributes a major chunk i.e. 72% to the total collection of income tax. The WHT collection collected by FBR stood at Rs. 1.091 trillion in FY20 against Rs. 960.2 billion reported in FY19, indicating a growth of 13.7%.
The ten major components of withholding taxes that contributed around 84% to the total WHT collection are: contracts, imports, salary, telephone, dividends, bank interest, cash withdrawal, electricity and exports.