In a significant development for Pakistan’s tax revenue system, the Federal Board of Revenue (FBR) has successfully collected a record Rs. 242 billion in taxes from interest income generated by bank depositors in the first eight months of the fiscal year 2024-25. This marks a new milestone in tax collection, showcasing the FBR’s effectiveness in enforcing tax policies related to profit on debt.
The tax collection stems from the 15 percent withholding tax imposed on the interest income of depositors in banks, a measure introduced in the current year’s budget. The interest income from bank accounts is subject to this withholding tax, making it one of the most substantial revenue-generating sources for the government. With a tax rate of 15 percent, the FBR has seen significant contributions from individuals and businesses benefiting from deposit interest, indicating a broader compliance with the country’s tax regulations.
The tax on profit on debt has emerged as one of the most crucial sources of revenue in Pakistan’s fiscal policy, second only to advance income tax collections. Profit on debt is the highest withholding tax category after the advance income tax, highlighting its central role in the government’s tax strategy. This growth in tax collection underscores the government’s increasing reliance on this category to boost its revenue base.
In addition to the tax on interest income, the FBR has also recorded an impressive Rs. 976 billion in advance income tax collections during the same period, further solidifying advance income tax as the highest source of revenue in the withholding tax categories. These numbers reflect the government’s ongoing efforts to streamline the tax system and capture a broader base of income from various sectors.
The success in collecting taxes on interest income has led some financial analysts to speculate that the FBR might revise the current 15 percent tax rate in the upcoming budget. A potential increase in the rate could boost tax revenues even further, given the growing trend of interest-based deposits in Pakistani banks. Such a move would also align with the government’s objective of improving fiscal health and reducing the budget deficit.
In addition to the Rs. 242 billion collected on interest income, other areas of the profit on debt category have also seen substantial contributions. For instance, taxes collected from government securities have amounted to Rs. 29 billion, while taxes from National Savings Certificates (NSC) and Post Office (PO) depositors have generated Rs. 19 billion. Furthermore, the FBR has collected Rs. 58 billion on account of dividend taxes, contributing significantly to the overall withholding tax revenue.
The ongoing success of these tax collection efforts highlights the FBR’s ability to tap into previously underreported revenue streams. This approach is crucial in an economy that faces numerous fiscal challenges, with tax evasion and a low tax-to-GDP ratio often hindering growth. By focusing on interest income and other investment-related taxes, the government can bolster its revenue while ensuring that depositors and investors contribute fairly to the country’s economic development.
In conclusion, the FBR’s achievement in collecting Rs. 242 billion from profit on debt is a significant step towards strengthening Pakistan’s tax system. As the government continues to explore ways to optimize tax collections, including potential increases in the withholding tax rate, the financial landscape is likely to experience more shifts. With strategic improvements in revenue generation, Pakistan could move closer to achieving fiscal stability, potentially transforming the nation’s economic outlook in the coming years.