The withholding tax collection from the salaried class witnessed 29.2 percent growth in 2021-22 as compared to the corresponding period of the previous fiscal year (FY).
According to the annual withholding tax data compiled by the Federal Board of Revenue (FBR) for 2021-22, released on Monday, the withholding tax collection from the contracts is the top revenue contributor of withholding tax, which shared over 1/5th of the withholding taxes collected during 2021-22. Its collection grew by 25.5 percent.
The growth is despite the reduced size of PSDP from Rs. 630 billion in FY 2020-21 to Rs. 550 billion during FY 2021-22. Notwithstanding the fact that the rate of withholding tax slightly decreased in respect of contracts (company cases from 7 percent to 6.5 percent and in respect of other cases from 7.5 percent to 7 percent), the overall growth in contracts remained remarkable. This phenomenon might be mainly due to contracts etc. initiated in FY 2020-21 which remained stuck up owing to COVID-19 and then subsequently executed in FY 2021-22.
The withholding tax receipts from imports during FY 2021-22 exhibited a growth of 28.9 percent primarily due to an increase in the value of imports by 58.8 percent. 16. Withholding tax collection from salaries exhibited 29.2 percent growth in the collection due to an increase in salaries by 10 percent in the Budget FY 2021-22.
Moreover, Income Tax rates in case of salary also increased for the employees on disparity consideration during FY 2021-22 as well. Moreover, certain exemptions, such as clause (39) of Part I of the Second Schedule to Income Tax Ordinance 2001, were withdrawn which contributed towards improved collection.
The outstanding growth in bank interest & securities as compared to the previous FY 2020-21 is attributable to the change in withholding rate from 10 percent to 15 percent for filers while doubled in the case of non-filers. Although the rate for dividends remained the same, the upward trajectory in dividends is remarkable. The collection of Withholding tax under the head of electricity consumption is ascribed to a surge in the rate of withholding tax on consumption and an increase in tariff.
The withholding tax under the head of the telephone has reflected only a 7.5 percent growth in the collection during FY 2021-22. The major reason for low growth is the reduction of withholding tax rates under section 236 on internet and mobile phone usage from 12.5% to 10% for the tax year 2022. Withholding tax from export during FY 2021-22 improved significantly by 53.8 percent mainly due to robust improvement in the value of export by 41 percent.
The collection of withholding taxes on sales/purchase of immovable property has exhibited growth of around 32 percent during FY 2021-22. Although tax rates remained the same, it seems that the continued boom in the real estate sector during FY 2021-22 helped in the improvement of collection, FBR said.
Almost two-thirds of Income Tax is collected through withholding mode. However, during 2021-22 the share of Withholding Taxes was reduced by 2.6 percent as compared to the previous year’s share of 68.6% which shows lesser reliance on Withholding Taxes.
Despite its reduced share in the Direct Tax collection the withholding taxes collection stood at Rs. 1,534.4 billion during 2021-22 and recorded a growth of 24 percent over the corresponding period of last year. The second major contributor to Income Tax collection is voluntary payments. Its collection grew by 44.6 percent during 2021-22.
This growth is achieved mainly due to a 44.5 percent increase in the advance tax. The collection on demand reflecting genuine departmental efforts resulted in robust growth of 26.1 percent during FY 2021-22. It is commendable that both the components of collection on demand i.e. current demand and arrear demand substantially improved by around 53.5 percent and 15.2 percent respectively.
The fact that Withholding Taxes are contributing around 66 percent of the total gross collection of Income Tax warrants a closer look at its components, FBR added.
