Withholding Tax Collection Rises Strongly in FY2025

Withholding tax collection from contractual payments remained the dominant revenue source during FY2025, registering a substantial increase of 37% to Rs728 billion, as compared to Rs531 billion in the preceding fiscal year, according to data released by the Federal Board of Revenue (FBR).

This growth has been primarily attributed to heightened public sector development expenditures, increased activity in infrastructure-related projects, and the inflationary impact on the valuation of contractual transactions.

Aggregate withholding tax collection for FY2025 amounted to Rs3,371.9 billion, reflecting an overall growth of 23.1%. Notwithstanding this increase, its proportional contribution to total direct tax revenue declined marginally from 59.8% in FY2024 to 58.2% in FY2025.

Tax deducted at source from salaries emerged as the second-largest contributor and recorded the highest growth among major categories, rising by 54.7% during the fiscal year. This increase is attributable to revisions in applicable tax rates, growth in income levels, and improved documentation and compliance within the salaried segment.

Withholding tax on bank interest and securities ranked third; however, it recorded a decline of 1.6%, with total collections amounting to Rs475 billion compared to Rs483 billion in the previous year. This decrease has been linked to a reduction in prevailing interest rates.

Collections from imports constituted the fourth-largest source, registering a growth of 10.9% during FY2025. This increase has been supported by higher import volumes, strengthened enforcement mechanisms, and policy-level adjustments.

Additionally, tax collected on dividend income increased by 12.4% on a year-on-year basis, while withholding tax on electricity consumption rose by 11.2%, notably lower than the 32% growth observed in the prior period. The comparatively slower growth in electricity-related collections has been attributed to base effects as well as increased adoption of alternative energy solutions.

Other withholding tax categories also demonstrated positive growth trends, with collections under Sections 154, 236, 236C, and 236K increasing by 25.1%, 24.1%, 22.1%, and 14.0%, respectively, indicating broad-based expansion across multiple tax heads.