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Tax collection from profit on government securities falls 25pc

KARACHI: Withholding tax collection from banks’ income on government papers sharply fell 25 percent to Rs1.37 billion in the first seven months of the current fiscal year of 2018/19 as the government’s propensity to borrow from the central bank for .
37 billion in the first seven months of the current fiscal year of 2018/19 as the government’s propensity to borrow from the central bank for budgetary financing during the period lowered the revenue, sources said on Friday.The collection of withholding tax from banking profit on investment into government securities amounted to Rs1.83 billion in the corresponding period of the last fiscal year.The sources said the government changed the borrowing pattern for budget financing during the period to the central bank from commercial banks.The Federal Board of Revenue (FBR) collects 10 percent on profit gained by institutions on investment in government papers, including short-term and long-term treasury bills.
The State Bank of Pakistan (SBP) also acknowledged the decline in government borrowing from commercial banks last year.The central bank said budgetary borrowings from the banking system remained subdued during the July-September quarter last year, as the fiscal deficit was predominantly funded by domestic non-bank sources as well as external borrowings.Within the banking system, the government extensively borrowed from SBP, primarily to repay a large volume of its maturing debt held by the commercial banks, the SBP said in a quarterly report.From January last year, the central bank started raising its key policy rate after keeping it on hold since May 2016.The interest rate was raised by 450 basis points to 10.25 percent in back-to-back hikes.
Tax officials said the return on investment of banking system would go up with increases in interest rates and it would subsequently push up the tax collection from the withholding tax head.The collection of withholding tax from banking deposits, however, sharply increased 221 percent in the July-January period and offset the decline in tax collection from profit on government securities.The FBR collected Rs 835 million from profit on debt (bank deposits) during the first seven months of the current fiscal year compared with Rs260 million in the corresponding period of the last fiscal year. Deposits of the banking system significantly increased during the first seven months of the current fiscal year.Deposits of banking system increased 8.8 percent to Rs13.057 trillion till end of January. They stood at Rs 12.002 trillion a year ago.The overall collection of withholding tax from profit on debts increased five percent to Rs2.415 billion during the July-January period. The figure was Rs2.31 billion in the corresponding period of the last fiscal year.

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