The highest growth in withholding tax (WHT) collection has been witnessed in three services/areas, which include telephones (39 percent); contracts (36.3 percent), salary (27.2 percent) and cash withdrawals from banks (23.8 percent), during the first nine months of 2007-08.
The FBR data on withholding tax collection showed that the levy continued to be the leading source of direct tax receipts in view of the large undocumented sector of the economy. However, despite its large contribution, there was ample scope to enhance this collection further.
The WHT collection during July-March 2007-08 was Rs 141.6 billion against Rs 116 billion during previous fiscal year, indicating a healthy growth of 22.1 percent.
Ten major withholding taxes constituted 91.3 percent of total WHT collection. These were contracts, imports, salary, telephone, export, bank interest, securities, electricity, dividends and cash withdrawal.
The share of contracts (35.2 percent) remained at the top, followed by imports (14.2 percent), salary (10.2 percent), telephones (9.1 percent), exports (5.5 percent) bank interest (4.5 percent), securities (3.4 percent), electricity (3.1 percent), dividends (9 percent), and cash withdrawal (3 percent).
The highest growth in WHT collection was from telephones (39 percent) followed by contracts (36.3 percent), salary (27.2 percent) and cash withdrawal (23.8 percent). This outcome reinforced the existing belief that telecom sector remained vibrant despite inflationary tendencies in the country.
Rationalisation of income tax rate for the salaried individuals and enhanced salary packages, especially in the private sector, yielded higher revenue. Similarly, the recent spike in international trade activities, especially imports, was instrumental in raising the WHT receipts on account of imports.
Contrary to this, the growth in WHT deductions on exports was negative due to the overall deceleration in exports. Finally, the sharp decline in WHT from securities in third quarter 2007-08 could be due to change in the nature of securities.
Apart from ten WHT contributors, the relatively minor components also recorded sizeable growth. For instance, WHT on stock exchange and rental increased by 74.5 percent and 49.2 percent, respectively during the first three quarters of 2007-08 over the corresponding period of previous year.
Similarly, despite all the resistance, the deductions on cash withdrawal continued to generate sufficient revenue for the national exchequer signifying the fact the Pakistan's economy continued to have a large informal sector, which despite major efforts remained undocumented. The growth in collection from electricity had been erratic during the past three quarters mainly due to abnormal increase in second quarter 2007-08.