FBR collects Rs10 billion as withholding tax on non-cash banking transactions

KARACHI: The Federal Board of Revenue (FBR) has collected around Rs10 billion as withholding tax from non-cash banking transactions during the fiscal year 2020/21 due to accelerated economic activities during the period after an ease in the number of coronavirus cases.

The collection is 33 per cent higher in the fiscal year under review, compared with Rs7.5 billion in the preceding fiscal year, official sources said on Friday.

The sources said during the fiscal year 2020/21, the government had decided not to impose strict lockdown as was done in the start of the pandemic in the country during February 2020.

These collection numbers are compiled on the tax deducted by the banks falling within the jurisdiction of the Large Taxpayers Office (LTO) Karachi, which has the jurisdiction over most of the banks operating in the country.

The revenue board collects withholding tax at 0.6 per cent on non-cash banking transactions under Section 236P of the Income Tax Ordinance, 2001. This section is; however, deleted through the Finance Act, 2021, meaning the banks have been barred from collecting/deducting the withholding tax under this head since July 1, 2021.

Section 236P was introduced through the Finance Act, 2015 to promote income tax returns filing in the country. Under this head, the banks were to collect withholding tax on behalf of the FBR on other than cash transactions above Rs50,000.

At the time of introduction of this section, the Federal Board of Revenue had faced severe resistance from stakeholders, especially the retailers who had agitated against it. Therefore, the government reduced the rate of the withholding tax to 0.3 per cent for both filers and non-filers of the income tax returns.

Through the Finance Act, 2019, the government changed the term of filer and non-filer with the Active Taxpayers. Therefore, the persons on the Active Taxpayers List (ATL) were subject to a reduced rate of 0.3 per cent and the rate for non-ATL persons stood at 0.6 per cent.

When this section was introduced, the income tax returns filing was 1.8 million; however, with a span of time and strict enforcement of withholding tax provisions, the returns filing has increased to above 3 million by the tax year 2020.

Considering the number of income tax returns, the government decided to abolish the provision to facilitate the general public.

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