ISLAMABAD: The Federal Board of Revenue (FBR) is collecting only 30 to 35 percent of total direct taxes through its own efforts while 65 to 70 percent revenue is being collected through withholding taxes (WHT) deducted at source.
As per details, the scope of WHT has been considerably increased in the budget for fiscal year 2013-14 resulting in automated increase in direct tax collections during the current fiscal year.
The withholding agents have been repeatedly reminded to deduct the tax from areas brought into the WTH regime in 2013-14. That’s why during the first half of 2013-14, the percentage of withholding taxes in total direct tax collections was as high as 65.5 percent whereas the remaining 35 percent is from income tax.
The FBR Directorate of Withholding Taxes is exclusively monitoring the performance of withholding agents to ensure deposit of WHT deducting agents including banks, Central Directorate of National Savings and others.
The bulk of the revenue comes from WHT already deducted by various categories of taxpayers’ falling under the definition of payers under the Income Tax Ordinance, 2001. The FBR is collecting withholding taxes without any effort or enforcement measures, recovery or audit and solely due to electronic system in place and regular filing of sales tax/income tax monthly/annual withholding tax deduction statements.
In most of the cases, the withholding taxes are deducted at source and made part of the overall direct tax collection of the FBR. The share of WHT in gross collection has substantially increased from 58.3 per cent to 67.5 percent in first quarter of 2013-14 mainly due to establishment of Regional Withholding Units which resulted in improved monitoring.
Within the WHT, the major share in the collection was from contracts/supplies (21.1%), imports (26.5%), salary (10.3%), telephone (8.7%), bank interest/securities (8.6%) and exports (4.9%) during the said period.
During the first quarter of 2013-14, telephone has shown a phenomenal growth of 431.3% mainly due to increase in the rate from 10 percent to 15 percent in the case of subscribers of cellphones and pre-paid cards and due to refunds paid back in July 2012 against advances taken in June 2012-13. Similarly, more than 44.1% growth was recorded in WHT on imports due to increase in rates through rationalization of tariff and introduction of WeBoc which is a more automated and transparent system which improved monitoring by directorate of withholding taxes.
The increase of 21.5% from salary can be attributed to revision of salary slabs and increase in the salaries of government servants and improved monitoring of private salaried persons. Growth of 33.2% in bank interest is due to consistent good performance by the banking sector.
The increase in the collection of dividends by 70.3% is mainly due to declaration of dividends by the companies due to increased economic activities and change in section 8 of Income Tax Ordinance through which dividend received by a corporate taxpayer in now taxable at the rate of 10% as fixed & final tax. The increase of 59.6% in the collection from cash withdrawals is due to increased liquidity in economy and increased rates of cash withdrawals in the last budget.
In 2012-13, the share of WHT, voluntary payments and collection out of tax demands in gross direct tax collections stood at 59%, 33.1% and 12.1% respectively.