ISLAMABAD: The share of withholding taxes in the overall collection of direct taxes has been reduced from 72% in 2020-21 to 65% during the first semester (July-December) 2021-22, a decrease of 7%.
According to the FBR report on withholding taxes, approximately 92% of the total withholding taxes collected come from contracts, imports, wages, telephone, dividends, bank interest, cash withdrawals, fees technical, electricity and exports in the first six months (July-December) of 2021-22.
The FBR data on withholding taxes for 2021-22 revealed that withholding taxes (WHT) contribute a significant share, namely 65%, of the total collection of gross income tax during of the first semester (July-December) 2021-22. WHT collection in the first half of 2021-22 was Rs 617.3 billion compared to Rs 530.0 billion in the first six months of 2020-21, indicating a growth of 16.5%.
In 2020-21, the WHT remained the largest contributor with 72% share in total income tax collection.
In the first six months of (July-December) 2021-22, the major withholding tax components that contributed approximately 92% of the total WHT collection are: contracts, imports, wages , telephone, dividends, bank interest, cash withdrawals, fees, electricity and exports, etc. In terms of growth, some of the items have shown remarkable growth such as Auction Advance Tax (159.7%), Imports (45.5%), Dividends (30.1%), exports (37.5%), Down payment on purchase/transfer of real estate (23.9%), electricity bills (22.9%).
On the other hand, the collection of bank interest, prices, technical fees, transport and telephone recorded a decline during the period under review, FBR added.
The overall share of withholding tax is 65% in income tax collection and withholding tax, again there seems to be a greater reliance on a few things. The share of contracts and imports topped with 20.1 percent and 19.9 percent, followed by wages at 12.7 percent and bank interest at 9.7 percent, the FBR report added.
It should be mentioned during the budget (2021-22), that the government withdrew 12 withholding taxes, including the collection of tax on the payment of the fee to residents; withdrawal of cash, banking instruments, non-cash banking, collection of taxes from persons remitting money abroad by credit or debit or prepaid card, collection of taxes on domestic air travel, travel international airlines, mineral extraction; members through a registered stock exchange in Pakistan, collection of tax on marginal financing by NCCPL, CNG stations and collection of tax on certain petroleum products.
The Income Tax Order 2001 contained 38 withholding tax provisions. This large number of provisions adds complexity and creates an excessive compliance burden for the various withholding officers. This also has an impact on the country’s rating on the ease of doing business index. In an effort to make business easier and simplify tax laws, 12 source deductions were omitted in the last budget.
According to collection data during the first half (July-December) of 2021-22, sales tax remained the main revenue generator with 43.7% share, followed by direct taxes with 35%, customs 16 .3% and Federal Excise Duty (FED) 5%, July-December FBR data of current fiscal year added.
Copyright Business Recorder, 2022