FBR may increase WHT rates if September collection falls short

ISLAMABAD: The Federal Board of Revenue (FBR) is considering a one per cent increase in withholding tax (WHT) rates starting from October, if it fails to meet its revenue targets for the ongoing month of September.

Reports indicate that the tax authority has drafted a proposal to hike WHT rates by one per cent should the tax collection for the first quarter of the fiscal year 2024-25 (July-September) fall short of expectations. This measure would be implemented through a supplementary Finance Bill if the shortfall continues into September.

According to Business Recorder, the decision hinges on whether tax collectors can meet the September targets. If they fail, withholding tax rates will be increased in October. Withholding taxes, which are collected alongside sales tax, make up over 70 per cent of the direct tax revenue in the fiscal year 2023-24.

While the standard sales tax rate is not expected to change, the proposal specifically targets withholding tax rates in response to ongoing revenue shortfalls.

It is worth mentioning that the FBR has already missed its collection target by Rs98 billion in the first two months of the fiscal year, collecting Rs1,456 billion instead of the projected Rs1,554 billion.

There is concern that the shortfall could grow by another Rs100 billion in the ongoing month due to declining import taxes and other factors. The expected growth in domestic taxes, initially projected at 18 per cent, might drop to 11 per cent in the coming months.

Given the current situation, sources suggest that pressure tactics such as reprimanding senior tax officials or threatening suspensions and transfers are unlikely to significantly boost tax collection in September.

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