ISLAMABAD: The third party collection of income tax or withholding tax has contributed around 63 percent in total collection of direct taxes.
In Biannual Review for January to June 2014, the FBR said that withholding tax contributes a major chunk i.e. around 63 percent in the collection of direct taxes of Rs884 billion in 2013/2014.
The WHT collection during FY: 2013-14 has been Rs578.4 billion against Rs436 billion during FY: 2012-13 indicating a growth of 32.6 percent.
The nine major components of withholding taxes contributed around 88 percent of total WHT collection. These are: contracts, imports, salary, telephone, export, bank interest/securities, cash withdrawal, dividends and electricity.
The highest growth in WHT collection has been from telephone (92 percent), followed by cash withdrawal (53 percent), salary (29 percent), dividends (26 percent), electric bills (23.3 percent) and contracts (22.5 percent). The reason behind vibrant growth is effective monitoring of WHT by creating special monitoring units and rationalization of withholding tax rates.
The FBR said the direct taxes have contributed 39 percent in the total tax receipts collected during FY: 2013-14. Historically, the share of direct taxes in total federal tax receipts has increased from around 15 percent in 1989-90 to 39 percent in FY: 2013-14.
The net collection stood at Rs884.1 billion reflecting a growth of 18.9 percent over the corresponding period last year. An amount of Rs63.7 billion has been paid back as refund to the claimants as against Rs53.4 billion during FY: 2012-13.
It may be recalled that the collection of direct taxes includes income tax and other direct taxes i.e. worker welfare fund and worker welfare profit participation fund. The contribution of income tax in total direct taxes is around 97 percent.
The structure of income tax is based on withholding taxes (WHT), voluntary payments (VP) and collection on demand (COD). The collection during FY: 2013-14 shows that the share of WHT, VP and COD in gross collection has been 62.5 percent, 28.4 percent and 8.7 percent respectively.
The collection from demand has declined by around 9.9 percent in FY 2013-14 as compared to PFY. The reason for decline is lack of audit for several years and huge demand stuck up in litigation. Due to lack of audit, fresh demand has not been created that could translate into collection.
Voluntary Payments (VP): This component includes payments with return and advances. Rs262.6 billion have been generated during FY: 2013-14 as compared to Rs244.9 billion in the corresponding period last year. Collection from VP has recorded a growth 7.2 percent. Major component of voluntary payment is advance tax where a sum of Rs 248.8 billion has been collected in FY 2013-14 against Rs 230.1 billion in FY: 2012-13.
The collection from advance tax has grown by 8.1 percent. The second component of VP is payment with returns, which has declined by 6.8 percent during the period under review. This shows lack of enforcement on the part of authorities. Deterrence should be created by effective audit and stringent enforcement.