WHT collection drops 14pc to Rs2.2bln in July-September

KARACHI: Withholding tax collection from non-cash banking transactions fell 14 percent to Rs2.21 billion during the first quarter of the current fiscal year of 2018/19 as number of returns filing increased, sources said on Friday.

The withholding tax collection amounted to Rs2.56 billion in the corresponding period of the last fiscal year.

The sources in the Large Taxpayers Unit Karachi said the decline in the collection was due to measures taken by the government to encourage declaration of assets and filing of annual returns.

Number of return filers increased to around 1.66 million as per the latest weekly updated list of active taxpayers list (ATL), which was only 0.87 million in 2013.

While the decrease in tax collection reflected improving compliance, it also emboldens challenges for the tax machinery struggling to increase revenue collection.

The tax collection machinery has been facing a constant challenge in achieving desirable revenue collection target. It faced revenue shortfall of more than Rs60 billion in the first four months of the current fiscal year of 2018/19. The FBR managed to collect only Rs1.106 trillion in the July-October period as against the target of Rs1.166 trillion.

The government is facing a daunting task to generate Rs4.4 trillion in revenue in the current fiscal year and to contain budget deficit at 5.1 percent, compared to the earlier target of 4.9 percent, and as against 6.6 percent recorded in the last fiscal year of 2017/18. The government, in the latest budget, made returns filing mandatory for purchase of motor car and transfer / purchase of immovable properties amounting to more than five million rupees.

The government, in Finance Supplementary (Amendment) Act, 2018 revised the rate back to 0.6 percent in order to increase cost of transactions for non-compliant taxpayers.

A tax official said a newly-introduced provision would substantially increase the number of return filers. Under the new law, late return filers will not get their names in active taxpayers list from tax year 2019 onwards. The appearance in the ATL is mandatory to avail reduced rate of withholding tax.

The previous government introduced section 236P through Finance Act 2015 under which banks are required to collect advance adjustable tax from a non-filer at the time of sales of any instruments, including demand draft, pay order, special deposit receipt, cash deposit receipt, short term deposit receipts, call deposit receipts, rupee traveler’s cheques or any other instruments of such nature.

The withholding tax rate was initially fixed at 0.6 percent, which was reduced to 0.3 percent till September 30, 2015 after the protest by the trade and business community.