Withholding tax

Withholding tax

Withholding tax has become a major source of revenue for the FBR. According to the latest figures, the field formations of the Federal Board of Revenue have collected more than three-fourths of income tax through withholding tax, which has contributed to a double-digit growth in revenues. An analysis of tax collection by the field formations in July-December of the current fiscal year revealed that the contribution of withholding tax to total income tax receipts was in the range of 75% to 95% in the case of 20 out of 23 formations. Net income tax collection by the 23 field offices totalled Rs695.7 billion, of which 70.6% or Rs491.5 billion came in the form of withholding tax. The share of withholding tax in the first half was 4% higher than the same period of previous year, indicating growing reliance on the regressive mode of taxation.

There are four Large Taxpayer Units (LTU) and 19 Regional Tax Offices (RTOs) that collect income tax and sales tax across the country. More than 16,000 people are currently working in these field formations. FBR’s data showed that an overwhelming majority of these units were solely relying on WTH. LTU Karachi-II collected Rs74.7 billion in income tax in the first half, of which 94.8% or Rs70.8 billion came in the shape of withholding tax. RTO Karachi-I collected Rs57.93 billion in income tax, of which Rs51.5 billion or 89% was withholding tax.
RTO Lahore-II collected Rs41.7 billion in income tax, of which Rs39.7 billion or 95.2% was withholding tax. RTO Lahore-I generated Rs34.1 billion which included Rs28.5 billion (83.4%) in withholding tax. LTU Lahore wax an exception that collected Rs12.2 billion or 22.6% of total taxes in withholding tax. Similarly, the LTU Islamabad received Rs91.4 billion in income tax in which the share of withholding tax was almost half. RTO Islamabad collected Rs32.2 billion in income tax, of which Rs28.3 billion or 87.7% was withholding tax.

It is relevant to add here that tax revenues are growing despite corruption and inefficiency in the FBR. In November, Prime Minister Shahid Khaqan Abbasi had taken notice of rampant corruption and appointment of officers with bad reputation at key positions in the FBR. However, after that nothing has happened and the PM Office is sitting on a report about hundreds of FBR officials serving at important posts. Apparently, the PM Office has become complacent after the double-digit revenue growth, although it had fallen short of the quarterly targets. It seems this has deflected attention from accountability and broadening of the tax base.

Regrettably, the FBR has failed to widen the extremely narrow tax base despite giving numerous extensions for filing income tax returns. The number of filers by the end of January 2018 stood at 1.220 million. The government has broadened the scope of tax under its strategy of charging higher tax rates from non-filers of income tax returns. This has helped increase tax collection, but the tax base has remained narrow. This is counter-productive. The real, long-term increase in revenue will come by broadening the tax base.

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Mian Bilal