Withholding tax collection on profit from government securities nosedives 25%

During July-January of current FY19, the collection of withholding tax from banking deposits soared 221% and counterbalanced the fall in tax collection from profit on government securities

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KARACHI: Withholding tax collection from banks’ income on government papers exhibited a nosedive of 25% to Rs1.37 billion in the first seven months of the current financial year 2018-19.

This happened due to the governments’ penchant for borrowing from the State Bank of Pakistan (SBP) for budgetary funding decreased the revenue, sources revealed on Friday.

According to a report in The News, the collection of withholding tax from banking profit on investment in government securities stood at Rs1.83 billion during the period under review of FY18.

As per sources, the government shifted its borrowing from commercial banks to the central bank during the aforementioned period.

The tax regulator collects 10% on profit gained by institutions on investment in government securities, including short-term and long-term treasury bills.

Also, the central bank admitted the decrease in government borrowing from commercial banks last year.

However, tax officials told return on investment of banking system would rise due to hike in interest rates and hence raise the tax collection from the withholding tax head.

During July-January of current FY19, the collection of withholding tax from banking deposits soared 221% and counterbalanced the fall in tax collection from profit on government securities.

In the corresponding period, the Federal Board of Revenue (FBR) amassed Rs835 million from profit on debt (bank deposits) compared to Rs260 million in the same period of FY18.

And the banking system exhibited a major increase in deposits during the first seven months (July-Jan) of FY19.

Banking deposits exhibited a rise of 8.85 to Rs13.057 trillion by end of last month and were recorded at Rs12.002 trillion a year ago.

The total collection of withholding tax from profit on debts grew 5% to Rs2.415 billion during the first seven months of FY19 compared to Rs2.31 billion in the same period of FY18.

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