ISLAMABAD: The collection of withholding tax (WHT) from profit on banking deposits surged by 185 percent during first eight months (July – February) 2019/2020 owing to higher interest rates maintained by the central bank.
According to sources, the withholding tax collection from profit on debt (banking deposits) increased to Rs43.75 billion during first eight months of current fiscal year as compared with Rs15.32 billion in the same period of the last fiscal year.
The sources in Regional Tax Office (RTO)-II, Karachi, a revenue collecting arm of the FBR said that that due to prevailing high rate of interest attracted bank deposits.
The State Bank of Pakistan (SBP) has kept policy rate unchanged at 13.25 percent. The policy rate was gradually increasing since August 2018 when the rate was 7.5 percent.
The sources explained that under Section 151(1)(b) withholding tax is collected on profit on debt paid by banking companies or financial institutions on account or deposit maintained.
Every banking company is required to collect 10 percent of the gross yield/profit paid up to Rs500,000 or 15 percent of the gross yield / profit paid exceeding amount Rs500,000 at the time the profit on debt is credited to the account of the recipient or is actually paid, whichever is earlier.
The sources said that it is mandatory for the banks to collect double the amount of withholding tax from those persons receiving profit on debt but not on the Active Taxpayers List (ATL).
The government through Finance Act, 2019 introduced 10th Schedule to the Income Tax Ordinance, 2001 to enhance the rate of withholding tax by 100 percent on certain transactions.
The measure has been taken to force persons making large transactions and paying withholding tax on such transactions but remained outside the tax net.
The sources said that after the implementation of the 10th Schedule the pace of return filing for Tax Year 2018 increased in order to avoid paying 100 percent higher rate of withholding tax.