FBR further tightens monitoring of withholding taxes

KARACHI: The Federal Board of Revenue (FBR) has further tightened the monitoring of withholding taxes after having been empowered by the apex court to demand previous deduction records from taxpayers, sources said on Friday.

“Now the FBR can demand records of WHT deduction of more than last five years from taxpayers,” said an official on the condition of anonymity.

“The issue had been pending in courts since long. However, the Lahore High Court (LHC) in 2009 gave a verdict in favour of the FBR, which was recently upheld by the Supreme Court of Pakistan,” added the official.

The official said that serious discrepancies had been detected in WHT deduction by the withholding agents especially in telecom and banking sectors.

“They were taking an advantage of the Income Tax Ordinance, which bars the tax authorities from demanding records,” he added.

The monitoring of WHT for the last several years yielded significant growth in revenue collection.

The WHT accounted for over 57 percent of total direct taxes in 2011/12, as the collection of this tax stood at Rs422.4 billion whereas total direct taxes were registered at Rs738.8 billion.

The tax authorities believed that huge collection could further be ensured through monitoring as large segment of the economy was not documented.

A report on WHT released by the FBR noted that serious violations of withholding provisions by taxpayers or withholding agents had been noted.

“In a number of cases, the agents deducted the tax but not timely deposited it in the government treasury, and the defaulters go unpunished,” said the report. FBR officials said that banks and telecom sector would remain under vigil, as both the sectors were the major withholding agents.

The tax agency collected Rs83.28 billion WHT from these two sectors during the last fiscal year.

It has been monitoring banks for last two years and recovered significant amount. However, the revenue body still believes that more is yet to come from this sector.

Another report of the FBR noted that banking sector was not paying its due share of taxes, which was vital to overcome problems faced by Pakistan’s 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 start paying its due share of taxes,” said the FBR’s third quarterly review for January-March 2012.

About the withholding of telecom sector, the FBR officials said that the revenue body was evolving a mechanism for a comprehensive audit of withholding deduction. In the past, the directorate of withholding taxes emphasised a proper monitoring of tax collected and actually deposited.

The FBR officials said that another reason of focusing banks and telecom sector was documentation of the economy and large segment of the society was linked with banks and telecom companies.

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