Tax office collects Rs51bln on profit from bank deposits

KARACHI: Income tax collection on profit earned on bank deposits increased 15 percent in the eight months of this fiscal year because it remained a top low-risk investment option during the virus restrictions, officials said on Saturday. The Regional Tax Office (RTO) – I Karachi collected Rs51.28 billion during the (July–February) FY2020/2021. That compared with Rs44.6 billion in the same months of the last fiscal.

This rise may be attributed to the surge in coronavirus cases. Sources in RTO-I Karachi said the Covid-19 was detected in February last year, which resulted in lockdown later.

During the lockdown, the officials said, all the commercial and industrial activities came to a halt, reducing the options for investment. In that scenario banks had received significant deposits, they added.

The deposits of the banking system hit a record high at Rs17.88 trillion by December 31, 2020. Previously, the banking deposits hit an all-time high of Rs16.88 trillion by September 30, 2020, according to data released by State Bank of Pakistan (SBP). Interestingly, the deposits and income tax collection posted increase despite reduction in key policy rate during the period. The SBP on Friday (March 19) decided to keep the policy rate unchanged at 7 percent. The policy rate has been maintained since June 25, 2020 when the central bank had decided to cut the rate by 100 basis points to 7 percent.

The sources said on a monthly basis the revenue collection had witnessed contraction in growth following lifting of the lockdown by the government to allow commercial and industrial activities to resume in June 2020. They said in the coming months the income tax collection was expected to rise considering the record-high bank deposits and a likely further increase in infection ratio in the third wave of the pandemic. The FBR collects income tax from profit on bank deposits under Section 151 of the Income Tax Ordinance, 2001. The tax rate is 10 percent for annual profit less than Rs500,000 and for above the rate has been prescribed at 15 percent.

Further, if the profit recipient is not on the Active Taxpayers List (ATL) then the rate is 100 percent higher.