During the first half of the current fiscal year of 2020/21, the Federal Board of Revenue (FBR) saw income tax collection from profit on bank deposits raise 15 percent to Rs32 billion, as investors preferred to keep their savings in the banking system in the midst of the coronavirus turmoil, sources said Saturday.
Rs28 billion in revenue collection was registered by the Regional Tax Office (RTO)-I Karachi, responsible for collecting taxes on deposit yields, during the corresponding period a year earlier.
RTO Karachi sources said uncertainty related to coronavirus infection was the primary reason for growth and people with cash behaved cautiously and contained expenses. Although the lockdown was eased in the middle of last year, its impact on the still ailing economy was devastating.
Interestingly, despite reductions in the main policy rate during the time, deposits and income tax collection showed an increase. In a short period of time between mid-March and June of last year, interest rates were cumulatively reduced by 625 basis points from 13.25 percent to 7 percent.
As per the sources, all economic and industrial operations came to a halt during the lockdown time of the coronavirus, causing little investment potential. This fiscal year it is expected to recover 1.5 to 2 percent.
The banking system’s deposits reached a record high of Rs17.8 trillion as of 31 December 2020. As of 30 September 2020, bank deposits had previously reached an all-time high of Rs16.8 trillion, according to data released by the State Bank of Pakistan.
However, the State Bank of Pakistan decided on Friday to keep the policy rate unchanged for the third time at 7 percent. The sources said that the revenue collection showed a contraction in growth on a monthly basis after the government lifted the lockdown to allow commercial and industrial activities.
They said that, given the record high for banking deposits, the income tax collection would further increase in the coming months. In December, the collection of income tax from benefit on banking deposits reported a rise of three percent to Rs4.1 billion.
In the same month last year, that was compared to Rs4 billion. The income tax rate is 10 percent lower than Rs500,000 for annual profit and the rate has been recommended at 15 percent above this level. Furthermore, the tax rate is 100 percent higher if the benefit beneficiary is not on the list of registered taxpayers.
