Revenue collection in first half of 2021-22: Share of withholding tax reduces to 65pc YoY

ISLAMABAD: The share of the withholding taxes in overall direct taxes collection has been reduced from 72 percent in 2020-21 to 65 percent during the first half (July-December) 2021-22, reflecting a decrease of 7 percent.

According to the FBR’s report on withholding taxes, around 92 percent of the total withholding tax collection comes from contracts, imports, salary, telephone, dividends, bank interest, cash withdrawals, technical fee, electricity and exports during first six months (July-December) of 2021-22.

The FBR data on withholding taxes for 2021-22 revealed that the Withholding Taxes (WHT) contributes a major chunk i.e. 65 percent to the total collection of gross income tax during first half (July-December) 2021-22. The WHT collection during the first half of 2021-22 has been Rs617.3 billion against Rs530.0 billion during first six months of 2020-21, indicating a growth of 16.5 percent.

In 2020-21, the WHT remained the major contributor with 72 percent share in the total collection of income tax.

During the first six months of (July-December) 2021-22, the major components of withholding taxes that contributed around 92 percent to the total WHT collection are: contracts, imports, salary, telephone, dividends, bank interest, cash withdrawal, technical fee, electricity and exports etc. As far as growth is concerned, some of the items have grown remarkably like advance tax on sale by auction (159.7 percent), imports (45.5 percent), dividends (30.1 percent), exports (37.5 percent), Advance tax on purchase/transfer of immovable property (23.9 percent), electricity bills (22.9 percent).

On the other hand, the collection from bank interest, prizes, technical fee, transport and telephone have recorded decline during the period under review, FBR added.

Overall share of withholding taxes is 65 percent in income tax collection and within withholding taxes, again there seems higher reliance on few items. The share of contracts and imports is on top with 20.1 percent and 19.9 percent, followed by salaries 12.7 percent and bank interest 9.7 percent, FBR report added.

It is worth mentioning during budget (2021-22), the government had withdrawn 12 withholding taxes including collection of tax on payment of royalty to residents; cash withdrawal, banking instruments, banking transactions other than through cash, collection of tax from persons remitting amounts abroad through credit or debit or prepaid cards, collection of tax on domestic air travel, international air travel, extraction of minerals; members by a stock exchange registered in Pakistan, collection of tax on marginal financing by NCCPL, CNG stations, and collection of tax on certain petroleum products.

There were 38 withholding tax provisions in the Income Tax Ordinance, 2001. This high number of provisions adds to complexity and creates undue burden of compliance on different withholding agents. It also impacts country’s rating on the ease of doing business index. In an effort to augment ease of business and simplify the tax laws 12 withholding taxes were omitted in last budget.

As per the collection data during the first half (July-December) of 2021-22, the sales tax remained the top revenue generator with 43.7 percent share, followed by direct taxes with 35 percent, customs 16.3 percent and the Federal Excise Duty (FED) 5 percent, FBR data of July-December of current fiscal year added.

Copyright Business Recorder, 2022