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Monitoring of withholding taxes
KARACHI: The Federal Board of Revenue (FBR) is considering asking banks to submit quarterly statements for each branch for the purpose of monitoring withholding tax payouts, said sources.
The sources said that senior tax managers have suggested to the revenue body that the quarterly statement of bank branches should be submitted to the local offices of the Pakistan Revenue Automation (Pvt) Limited (PRAL) for examination by tax officials.
According to these sources, the FBR has also suggested that the withholding tax deducted on salary, profit and dividends should be routed to the revenue body’s database through the central bank, whereas the details of other heads under which withholding tax is deducted should be submitted by bank branches.
The FBR, it is said, is also considering assigning PRAL and FBR officials to check the quarterly statement so as to ensure that the banks are depositing the withholding taxes with the FBR on a timely basis.
The move comes at a time the FBR is in the process of further strengthening the monitoring of withholding tax payouts by various sectors with a special focus on the banking sector. Although the primary objective of a composite audit of taxpayers is supposed to be deterrence, the FBR thinks that a quarterly scrutiny of withholding taxes will ensure greater revenue collection, said sources.
The FBR initiated the monitoring of withholding taxes two years ago and recovered billions of rupees during the monitoring of the banking companies, said sources.
Withholding tax accounted for over 57 percent of total direct taxes in 2011-12 – a stunning Rs422.40 billion – while the collection of direct taxes was Rs738.80 billion.
Besides generating revenue, withholding tax was also meant to improve documentation of the economy but the revenue body has so far failed to bring a large number of taxpayers into the net.
The tax managers are also said to have insisted that PRAL improve its verification of taxpayer details.
Further, on-spot checking of bank records regarding deduction of withholding taxes was also suggested.
Earlier, the FBR had attempted to get the details of withholding tax deductions from those bank clients withdrawing large amounts of cash from banks but was impeded by legal issues.
A report of the FBR said that the banking sector is not paying its due share of taxes, which is vital to overcome problems faced by the economy.
“The problems faced by the economy like rising public debt, fiscal deficit, low tax-to-GDP ratio, etc, can be tackled effectively if the corporate sector and, particularly, the banking sector starts paying its due share of taxes,” reads the FBR’s third Quarterly Review for January-March 2012. The report also recommended that tax authorities remain vigilant regarding the collection of withholding tax by banking companies.
Under the standard operating procedure for monitoring issued by the Directorate of Withholding Taxes, the FBR also advised the tax officials to conduct a macro-analysis of profit on debt paid by the banks to accountholders and the amount of tax deducted and deposited by all branches.
The tax officials have been advised that the data reported to the State Bank of Pakistan should be obtained from the central bank for cross verification.
The SOP advised that the system of the banks relating to deduction and deposit of tax should be examined along with the necessary checks and balances, therein, for transparent deduction and deposit of tax in time in respect of all accountholders.
“The issue of deduction of tax on gross amount paid or on the net amount, ie, after adjustment of profit on debt payable also needs consideration of the concerned officers on a sample basis,” according to the standard operating procedure.
KARACHI: The Federal Board of Revenue (FBR) is considering asking banks to submit quarterly statements for each branch for the purpose of monitoring withholding tax payouts, said sources.
The sources said that senior tax managers have suggested to the revenue body that the quarterly statement of bank branches should be submitted to the local offices of the Pakistan Revenue Automation (Pvt) Limited (PRAL) for examination by tax officials.
According to these sources, the FBR has also suggested that the withholding tax deducted on salary, profit and dividends should be routed to the revenue body’s database through the central bank, whereas the details of other heads under which withholding tax is deducted should be submitted by bank branches.
The FBR, it is said, is also considering assigning PRAL and FBR officials to check the quarterly statement so as to ensure that the banks are depositing the withholding taxes with the FBR on a timely basis.
The move comes at a time the FBR is in the process of further strengthening the monitoring of withholding tax payouts by various sectors with a special focus on the banking sector. Although the primary objective of a composite audit of taxpayers is supposed to be deterrence, the FBR thinks that a quarterly scrutiny of withholding taxes will ensure greater revenue collection, said sources.
The FBR initiated the monitoring of withholding taxes two years ago and recovered billions of rupees during the monitoring of the banking companies, said sources.
Withholding tax accounted for over 57 percent of total direct taxes in 2011-12 – a stunning Rs422.40 billion – while the collection of direct taxes was Rs738.80 billion.
Besides generating revenue, withholding tax was also meant to improve documentation of the economy but the revenue body has so far failed to bring a large number of taxpayers into the net.
The tax managers are also said to have insisted that PRAL improve its verification of taxpayer details.
Further, on-spot checking of bank records regarding deduction of withholding taxes was also suggested.
Earlier, the FBR had attempted to get the details of withholding tax deductions from those bank clients withdrawing large amounts of cash from banks but was impeded by legal issues.
A report of the FBR said that the banking sector is not paying its due share of taxes, which is vital to overcome problems faced by the economy.
“The problems faced by the economy like rising public debt, fiscal deficit, low tax-to-GDP ratio, etc, can be tackled effectively if the corporate sector and, particularly, the banking sector starts paying its due share of taxes,” reads the FBR’s third Quarterly Review for January-March 2012. The report also recommended that tax authorities remain vigilant regarding the collection of withholding tax by banking companies.
Under the standard operating procedure for monitoring issued by the Directorate of Withholding Taxes, the FBR also advised the tax officials to conduct a macro-analysis of profit on debt paid by the banks to accountholders and the amount of tax deducted and deposited by all branches.
The tax officials have been advised that the data reported to the State Bank of Pakistan should be obtained from the central bank for cross verification.
The SOP advised that the system of the banks relating to deduction and deposit of tax should be examined along with the necessary checks and balances, therein, for transparent deduction and deposit of tax in time in respect of all accountholders.
“The issue of deduction of tax on gross amount paid or on the net amount, ie, after adjustment of profit on debt payable also needs consideration of the concerned officers on a sample basis,” according to the standard operating procedure.
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