Zubair Qureshi Islamabad
In house studies conducted by the Federal Tax Ombudsman Secretariat have revealed systemic gaps and loopholes in the prevalent withholding tax monitoring and payment system particularly in the banking sector.
The studies revealed that commercial banks in Pakistan normally avoid field audits of withholding taxes on one pretext or another on the grounds that banks have developed centralized & credible software for tax withholding and that withholding audit will trespass into the privacy and confidentiality of their client’s data.
An investigation was initiated as Own Motion in exercise of jurisdiction conferred under Section 9(1) of the Federal Tax Ombudsman Ordinance, 2000 (FTO Ordinance).
While conveying the reasons for conducting ‘Own Motion’ investigation, the FBR was asked to share data of action completed on account of default of withholding taxes and to also share current withholding strategies for monitoring of withholding of taxes and credit of such payments to the government along with future plans for reforming withholding tax deduction and payment system.
FBR reported to FTO the current strategy for monitoring of withholding taxes in the banking sector.
They stated that field formations have conducted random system audits of the banks falling under their jurisdiction from time to time by visiting the head offices and branches of these banks. However, data shared with this office during the investigation did not support the stance of the FBR. It is observed that total demand created by FBR from LTO Karachi is Rs. 38,149/- million as a result of initiatives made u/s 122(5A) and 161. Out of the said demand, Rs. 794/- million is attributed to proceedings u/s 161 which constitutes 2.08% of the total demand created. When demand of Rs. 127/- million created u/s 151, 153 and 155 is taken into account, the percentage of demand created attributable to withholding tax further falls down to mere0.33%.