The Federal Board of Revenue has started withholding tax audit of the corporate sector employers at the national level to check whether withholding tax was accurately deducted from salaries paid by employers to employees working in corporate entities and companies.
Sources told Business Recorder on Saturday the FBR has issued instructions to the Chief Commissioners of Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) for monitoring short-deduction in corporate sector under section 149 of the Income Tax Ordinance, 2001 through system audit. The purpose of the whole exercise is to recover the defaulted amount of withholding tax from the corporate sector in cases where employers failed to fully deduct the amount from salary under section 149 of the Income Tax Ordinance 2001.
Moreover, the audit would also check whether the deducted amount has been fully deposited in the national kitty, sources said. Under section 149 of the Income Tax Ordinance 2001, every employer paying salary to an employee shall, at the time of payment, deduct tax from the amount paid at the employee's average rate of tax computed at the rates specified in Division I of Part I of the First Schedule on the estimated income of the employee chargeable under the head "salary" for the tax year in which the payment is made after making adjustment of tax withheld from employee under other heads and tax credit admissible after obtaining documentary evidence. This evidence is related to the tax withheld from the employee during the tax year; any excess deduction or deficiency arising out of any previous deduction or failure to make deduction during the year.
According to the FBR's instructions to the field formations, the withholding audit under section 161 and section 205 of the Ordinance 2001 remained priority of the FBR as this is one of the important sources that has helped in up-surging the collection. It has been observed that in the last two years withholding taxes in respect of corporate salaries under section 149 remained a neglected area. There is a heed of focused withholding audit of salaries of corporate sector which can yield significant revenue, the FBR said.
In this connection RTO-I, Lahore has conducted a system based analysis of withholding statements filed by their 1,056 corporate clients in the current financial year under section 149 by applying an average tax rate formula given in the income tax return. With the help of this system based analysis RTO-II, Lahore was able to analyse 1,056 and 2,206 withholding statements u/s 149 received in July/August 2013 Rs 185 million and Rs 86.5 million, respectively as short payment by three known corporate units. This is an extremely useful exercise and can be conducted by each RTO on the same lines.
In addition to this it is important to mention that for the convenience of the analysis of the withholding statements now the statements can be converted into excel sheet by the relevant tax officials in the field formations. The Chief Commissioners of the LTUs/RTOs may take up the withholding audit of the salaries of corporate sector u/s 149 immediately as this is one of the potential yet unexplored area for withholding audit. The FBR expects a significant increase in the collection under sections 161 and 205 of the Income Tax Ordinance 2001.
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