The Federal Board of Revenue (FBR) has found that most of the project directors of 2,300 public sector development projects (PSDP) were not filing their withholding tax statements under Income Tax Ordinance 2001.
Sources told Business Recorder that the Directorate General Withholding Taxes has conducted scrutiny of development projects of the government for which a list of around 2,300 federal government-funded projects was sent to the field formations.
The results showed massive non-compliance by the government departments and its projects having huge financial outlays during 2007-08. The feedback from offices revealed that around 50 percent projects were not on the list of withholding agents of the respective regional tax offices (RTOs). Secondly, very few project directors were regularly filing their withholding statements. Above all, overall deductions reported for the previous year under section 153 of the Ordinance, 2001, did not reconcile with the development outlays of the year.
The PSDP has different components in terms of civil works, operational expenditure, salary and wages and others. The field formations would examine the development accounts of the federal and the provincial as well as district governments in their respective jurisdictions for ensuring proper deduction and deposit of tax on all payments on this count.
Sources said that similar analysis is possible for bank interest, cash withdrawals from banks, exports and other withholding tax provisions, on the same pattern and can possibly yield substantial revenue, besides improving overall enforcement.
Sources said that withholding tax collection under section 153 (contracts executed, supply of goods and services) is very important in terms of overall contribution and actual potential of such projects. There is huge potential for exponential growth in collection under this head. The figures of collection of tax and that due on the development expenditure of the government and deductions made by the private sector need reconciliation in each regional tax office pertaining to developmental allocations by the government and expenditure by the private sector. Therefore, a macro analysis of activities and monitoring of all withholding agents is necessary.
While examining the record of construction/execution of contracts/mega projects, the department would verify the advance payments allowed to the contractors before execution of contract; material supplied to the contractor for execution of contract; manpower provided to the contractor and mechanism of deduction of tax; consideration for other amenities provided such as premises, networking facility, software and technical or other services; any rebate or credit allowed in recognition of before time completion of project, and fine imposed for delay in completion of projects and effect thereof on deduction in tax.
All major organisations in the public sector need to file the annual contract awards and withholding reports, stating the tax deducted from payments to prime contractors of publicly-funded projects. Besides, the contracts are sub-let frequently in Pakistan also, but deduction is restricted to the prescribed persons only. In the cases of sub-letting of contracts, the terms and conditions and mechanism of tax deduction from the payments to sub-contractor should be examined, sources added.
Highlighting key areas for analysis, sources said that there is a need to examine that deduction for contracts executed, supplies made and services rendered; payments to include sales tax for deduction purposes; advances are also covered in the total amount of payments for deduction purposes; total payments on account of purchases, services, expenses and amount of total deductions during the relevant period; sample checking of bills to see actual deductions on all transactions; reconciliation of total payments and deductions as per tax ledgers; offshore supply contracts-tax deducted/not deducted from non-residents and intimation sent to the department for non-deduction; service/consultancy contracts; special rate/reduced rate payments and basis-evidence to be seen and payment to non-resident engineers on installation works has to be seen in view of withholding tax.
Comments
Comments are closed.