FBR Posts 31% Growth in Taxes Collected From Demand Notices in 2020-21

The Federal Board of Revenue (FBR) has collected Rs. 80.1 billion during 2020-21 from income tax demands raised against the taxpayers compared to Rs. 60.8 billion which was collected in the previous fiscal year, showing a handsome growth of 31 percent.

The FBR has conducted a detailed analysis of Collection on Demand (CoD) during 2020-21. The FBR has released a report on Tuesday on the collection of income tax demands from the registered taxpayers.

The FBR report stated that the CoD covered taxes levied for various defaults/taxes evaded and collected out of such tax demand. In this sense, it provides a true reflection of the departmental efforts to enhance revenue collection and ensure tax compliance in the country. Although its current share at 4.6% of the total direct taxes collection is on the lower side, however, it is promising to note that during fiscal year (2020-21), overall collection from this head stood at Rs. 80.1 billion.

Further details of collection under this head reveal that the recovery from arrear demand has shown substantial growth of around 75 percent, which is reflective of the extraordinary departmental efforts to recover due taxes. On the other hand, collection out of current demand also increased by a healthy 19.9 percent. While these are promising developments, it is still believed that a thorough desk audit by the field formations could contribute significantly in raising the revenue from this head which will be instrumental ultimately in ushering in a fair tax culture on the principle of taxing everyone according to the capacity to pay, FBR stated.

Under the head of payments with returns and advances, an amount of Rs. 465.8 billion has been collected during 2020-21 as compared to Rs. 404.5 billion in 2019-20. A major component of this head of the collection is the Advance Income Tax where a sum of Rs. 411.7 billion has been collected against Rs. 348.1 billion in FY 2019-20, registering a growth of 18.3 percent.

The other component of this head of the collection is tax payment made with income tax returns, where a sum of Rs. 54.1 billion has been collected during FY 2020-21 against Rs. 56.5 billion in FY 2019-20 registering a negative growth of 4.3 percent. Negative growth of taxes paid with income returns signifies lower incomes earned during the preceding year consequent to the economic slowdown in the country. However, this fact needs to be further confirmed through systematic tax audits to forestall the possibility of revenue leakage.

The report added that the Withholding Taxes (WHT) contribute a major chunk i.e. 72% to the total income tax collection. During FY 2020-21, Rs. 1,237.1 billion worth of WHT was made, against the figure of Rs. 1,091.7 billion in the preceding year, indicating a growth of 13.3%.

Performance of 10 major heads of WHT (which contribute about 85% of the total WHT collection) is given which shows that except technical fee and cash withdrawal, all other major items have recorded positive growth. Growth in WHT from salaries remained the highest with 17.3 percent followed by dividends and telephone with 15.6 percent each and electricity 12.8 percent.

The largest source of WHT i.e. contracts also grew by 14.6 percent. Growth in these heads of WHT indicates increased economic activity particularly in the second half in the services and manufacturing sector and higher corporate profits during the FY 2020-21.

WHT is an essential component of revenue collection across the world and even countries with developed and documented economies use it as a tool of not only revenue generation but spreading the burden of taxes on taxpayers across a financial period.

In Pakistan, the WHT collection is highly concentrated on a few heads. The highest contributors in withholding taxes are contracts with 22 percent share, followed by imports (17.7) and salaries (12.3). Further break-up reveals that the share of these three heads of WHT i.e. contract, imports, and salaries, is 52 percent in the overall WHT mix. This makes WHT vulnerable to 10 variations in these three heads. The need is, therefore, felt of fetching more revenue from other WHT items, FBR added.



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