The Federal Board of Revenue (FBR) has reported a significant drop in income tax collection from profits on bank deposits, a decline directly linked to the recent cuts in interest rates by the State Bank of Pakistan (SBP).
Data for March 2025 reveals a sharp 54% decline in tax receipts from this source compared to the same month last year. According to sources at the Large Taxpayers Office (LTO) Karachi, income tax collection from bank deposit profits stood at Rs2.50 billion in March 2025, a substantial decrease from Rs5.42 billion recorded in March 2024. This sharp fall underscores the impact of the SBP’s monetary easing policy, which saw the benchmark interest rate reduced significantly from a high of 22% to 12% during the current fiscal year.
Lower Rates Impact Taxable Income Despite High Deposit Volume
While the overall volume of bank deposits has reached a historic high of Rs31.63 trillion by March 2025, the lower interest rates have resulted in reduced profit margins for depositors. Consequently, the taxable income generated from these deposits has decreased considerably, leading to the observed drop in tax collection.
Despite the sharp monthly decline, the cumulative collection figures for the first nine months (July–March) of the current fiscal year show a modest increase. The collection of income tax on bank deposit profits rose by 2%, reaching Rs81 billion, up from Rs79 billion during the same period in the previous fiscal year. This marginal growth is attributed to stronger collection in the earlier months of the fiscal year when interest rates were still at higher levels.
Future Outlook and Fiscal Implications
Experts note that while bank deposits remain a secure investment option, the reduction in profit rates has directly affected government revenue from this sector. Concerns are being raised that if interest rates remain subdued, tax collection on bank deposits could continue to face pressure as lower returns might discourage savings in interest-bearing accounts. Authorities are closely monitoring this trend due to its potential impact on broader fiscal planning and revenue projections for the remainder of the fiscal year.
