Tax collection on profit from govt securities up 22pc

KARACHI: The collection of income tax from return on investment in government securities has registered an increase of 22 percent during the first eight months (July-February) 2020/2021, sources said on Monday.

The sources in Large Taxpayers Office (LTO) Karachi said the tax collection from yield on government securities increased to Rs4 billion during the first eight months of the current fiscal year as compared with Rs3.26 billion in the corresponding months of the last fiscal year.

The rise in tax collection may be attributed to an increase in tax rate for banking companies on their investment in government securities ie market treasury bills (MTBs) or Pakistan investment bonds (PIBs).

The corporate tax rate on banking companies is 35 percent, which is higher when compared with 29 percent for all other corporate entities. However, the government in the last budget introduced a separate tax rate at 37.50 percent for banking companies on their profit earned from investment in government securities.

As per interpretation of the FBR, the profit of banking companies from government securities is in excess of 20 percent of total profit before tax is now taxed separately at the rate of 37.5 percent.

Government borrowing from scheduled banks decreased to Rs1.14 trillion during July-February 2020/2021 as compared with Rs1.29 trillion in the corresponding period of the last fiscal year, according to statistics released by the State Bank of Pakistan (SBP). The government borrows for budget financing through auction of MTBs / PIBs at the rate near to the benchmark policy rate announced by the SBP. Sources said that the banks had earned significant profits due to higher interest rates during the last fiscal year. However, the central bank sharply cut the interest rate after the outbreak of coronavirus in March 2020. Sources also said that the existing policy rate of 7 percent has started affecting revenue collection under this head. The collection of income tax fell by 47 percent to Rs329 million in February 2021 as compared with Rs624 million collected in the same month of the last year.