This significant revenue mainly comes from the country’s two largest cities of the country, Karachi and Lahore, which contributed nearly 60% of the total collection.
The Pakistan Democratic Movement government implemented a 0.6% tax on cash withdrawals exceeding Rs50,000 by non-filers of income tax returns. Additionally, domestic electricity bills over Rs25,000 per month for non-filers also attract a 7.5% withholding tax.
These measures have led to an increase in revenue collection, with Rs85 billion accumulated from July to December of the current fiscal year. This figure marks an increase of Rs27.5 billion compared to previous periods.
Despite these achievements, Pakistan’s tax base remains narrow, largely due to the focus on taxing non-filers rather than broadening the tax net. The government’s strategy, which has been in place for the past decade, has shown limited success in expanding the number of tax filers.
During the first half of this fiscal year, Rs15.2 billion was collected through the 0.6% tax on cash withdrawals, with Karachi and Lahore being the largest contributors. This tax was first introduced by former Finance Minister Ishaq Dar during the PML-N’s 2013-18 tenure but had unintended consequences like increased cash circulation outside banks.
The currency in circulation saw a decrease during this period, attributed to high-interest rates and attractive returns on savings accounts. However, the FBR’s collection from smaller cities like Peshawar, Multan, Sargodha, and Sialkot was also notable.
An additional Rs69.4 billion was collected from electricity bills, showing a 22% increase due mainly to the hike in electricity prices. Lahore and Karachi were significant contributors to this collection.
Facing the challenge to increase its tax base to 6.5 million filers by June as per commitments to the International Monetary Fund and the Special Investment Facilitation Council, the FBR’s count of filers stood at 3.6 million as of the end of December for the tax year 2023.
