Tax collection on bank profits declines 26%

KARACHI: The collection of income tax on profit from bank deposits witnessed a decline of 26 per cent during the first four months (July-October) of the current fiscal year due to the lower-key interest rate and withdrawal of money from the banking system.

According to the official data made available on Tuesday, the Large Taxpayers Office (LTO) Karachi collected an amount of Rs18.85 billion as income tax on profit from bank deposits, compared with Rs25.31 billion in the corresponding period of the last fiscal year.

Sources said the lower rate of key policy rates that prevailed during the last year had resulted in a massive decline in tax collection.

The State Bank of Pakistan (SBP) had maintained the policy rate at 7 per cent during the last fiscal year, which resulted in the shifting of savings to other avenues of the economy.

A bank is required to deduct/collect 15 per cent as income tax from the amount paid as profit on deposits. However, the rate would be 30 per cent for those persons receiving profit on deposits but not on the Active Taxpayers List.

The sources said the revenue collection under this head would rise in the coming months, as the policy rate has been increased.

The State Bank in its monetary policy announcement in September 2021 increased the policy rate by 25 basis points and it was further increased by 150 basis points to 8.75 per cent on November 19, 2021.

The income tax collection on gains by banks investment in government securities posted an increase of 16 per cent to Rs2.98 billion during the first four months of the current fiscal year, compared with Rs2.58 billion in the corresponding months of the last fiscal year.

The FBR source said changes in the criteria in taxation on banks had resulted in an increase in the tax collection under this head.