Deduction and deposit of WHT: LTU Lahore unearths wrong practices adopted by mega entities

Large Taxpayer Unit (LTU) Lahore has unearthed wrong practices adopted by multinational companies and big corporate entities (withholding agents) in the deduction and deposit of withholding tax and suggested policy measures to the Federal Board of Revenue (FBR) to resolve major issues of banks and other sectors operating under LTUs across Pakistan.
In this regard, the FBR has received detailed suggestions of the Chief Commissioner LTU Lahore on the corporate taxpayers, who were unable to file withholding statements through 'IRIS'. The viable policy measures are under consideration of the Board to resolve problem of big withholding agents, sources added. According to the LTU Lahore, it was noticed that following wrong practices are being followed by various withholding agents, which need to be corrected through issuance of a clear standard operating procedure (SOP) by IT Wing.
Firstly, most of the taxpayer companies are not filing particulars of Below Taxable Limit (BTL) salaries and payments related to purchases/expenses. A notification is needed to be issued making it compulsory for the withholding agents regarding entries of all BTL and exempt transactions including salaries into withholding statements. Secondly, the taxpayer companies while calculating tax liabilities under section (u/s) 149 of the Income Tax Ordinance are giving illegal adjustments of previous year refund of the employees, claimed in then returns. The concerned Commissioner may be alerted of this malpractice to take necessary action.
Thirdly, the taxpayer companies are reluctant to file statements in which they have over deducted the tax amount due to misperception about the active/inactive status of taxpayers at the time of deduction. Such companies have been asked to deposit the amount of tax deducted as the persons whose tax has been over deducted, can always claim it as refund in their income tax returns. Fourthly, some taxpayers are omitting problematic data while filing statements for which detailed audit is needed to be conducted by the officers having jurisdiction for the first 6 months of the year.
The LTU Lahore has already obtained withholding statements of about 70% of the eases till dale there are only 81 non-filers which have been issued notices. The officers of LTU, Lahore ate in constant contact with the representatives of the taxpayers and it is hoped that by removal of above noted anomalies, the LTU Lahore will be able to obtain 100% compliance from its particular taxpayers by the end of this month.
The LTU Lahore has proposed the FBR that on pattern of returns and wealth statements, revision option may also be provided for withholding statements in case of wrong entries/miscalculations. Presently, the law does not provide any mechanism for such revision. Such revision may be allowed within sixty days of the submission for any error/omission without permission of Commissioner and afterwards may be allowed with the prior approval of the concerned Commissioner. This amendment in law may be introduced in the next Finance Act retrospectively w.e.f. July 1, 2015. It is observed that as per law separate statements are required to be filed u/s 165 and 149 of the Income Tax Ordinance, 2001. However, presently, combined data/ statement is being filed in IRIS. It is proposed that separate statements u/s 165 and 149 may be devised to be filed in 'IRIS'. Moreover, it is also proposed that submission of annual statement u/s 165 and 149 may be made mandatory to be filed by the withholding agents. It is further proposed that the withholding agents may require filing annual withholding statements on the basis of tax year/special tax year adopted by them.
The representatives of banks complained that they are not able to file the withholding statement because the present IRIS software requires party-wise data of each account holder from whom tax has been deducted at the time of payment of interest, on cash withdrawal and other banking transactions. Although there is explanation inserted though Finance Act, 2013 in section 165 of the income Tax Ordinance, 2001 especially related to statements filed by the banking companies however, the claim that due to secrecy requirements, such data cannot be provided in statements u/s 165 and therefore they are contemplating litigation on this issue. It is proposed that the policy and operation wing of FBR may take up this matter with bank authorities and State Bank of Pakistan in order to reach a mutually agreed arrangement for disclosure of such information/ statements, the LTU Lahore added.
In a communication to the FBR, the LTU Lahore stated that as per directions of Special Assistant to Prime Minister of Pakistan conveyed through Chief (Withholding Taxes), meeting was held with the representatives of companies being assessed at Large Taxpayers Unit, Lahore who have not been able to file their withholding tax statements because of technical reasons. The meeting was held and was attended by the Technical Team of Pakistan Revenue Automation Limited (PRAL) along with Zainul Abideen Sahi and Rai Irshad from Project Team of Information Technology Wing of the FBR. It was noted that date-wise list of active taxpayers is not available in IRIS or on FBR website. As a result, the withholding agents preparing withholding statements for last 6/7 months arc not sure about the correct applicable rate or tax. It is suggested that date-wise active taxpayer list (ATL) may be made available at the FBR website. The PRAL team may also he asked to develop software interlinks which can intelligently pick ATL status while entering date of transaction in the withholding statements, the LTU Lahore.
It was pointed out by withholding agents that some or the exemptions provided in law are not appearing in the exemption dropdown list in IRIS. To quote few examples the system does not provide for exemptions provided in clause (43B) and clause (45) of Part-IV of Second Schedule. It is suggested hint the exemption dropdown list in IRIS may be revisited in consultation with Policy Wing to remove this shortcoming.
Difficulties are being laced by the withholding agents because of non-availability of some filters and download/print options. It is suggested that the sorting criteria should be extended to name, NTN and value of transaction.
Download/print facility for under preparation and saved excel sheets (but not yet submitted by withholding agents) should also be provided to facilitate withholding agents. Quite a number of withholding agents have pointed out that on validating the file, the system initially highlights all the invalid entries. However, when they start making corrections, the remaining of "highlighting" disappears after correction of first entry. The highlighting re-appears when the file is closed and re-opened again. Due to this anomaly the withholding agent has to close, save and reopen the file again and again which causes inconvenience and loss of time. It is suggested that the above said anomaly may be rectified in order to make the system more workable, the LTU Lahore maintained.
It was pointed out by the taxpayers that when they add parties/concerned withholding agents in the generic exemption certificate u/s 153, its intimation is not sent to the concerned parties/ withholding agents. Hence they have to transmit manual certificates to the concerned parties in order to get exemption. This mechanism is prone to misuse and it is, therefore, suggested that addition of name of party in certificate u/s 153 should automatically generate a notification in IRIS account/inbox of the concerned party.
Some of the taxpayers pointed out that "one-by-one" entry of name of parties/withholding agents after issuance of generic certificate u/s 153 is cumbersome and time consuming. Sometimes the number of parties goes up to 3,000 to 4,000 which waste a lot of time of the taxpayers. Hence, instead of adding names of parties/withholding agents in IRIS, they just give a print out of generic certificates to the withholding agents and ask them not to deduct tax, being exempt, but IRIS does not recognise any exemption on the transaction unless party names are added in generic exemption certificate and calculate tax on submission of withholding statement. Therefore, it is proposed that a bulk addition of name of parties/withholding agents using excel sheets may be provided in IRIS to facilitate the taxpayers.
It was also pointed out that exemption certificate u/s 151, 235 etc is only reflected in the IRIS account of the taxpayers and is not intimated to the concerned banks, DISCOs and other Government institutions. The taxpayers have to provide manual printouts of such certificates to all such authorities who in turn send those certificates manually to the tax offices for verification/attestation. This method is prone to misuse and it is, therefore, proposed that search/verification option of exemption certificates through NTN/CNIC/Name/barcode should be made available at FBR website so that the banks and other concerned institutions can access validly issued exemption certificates through system, the LTU maintained.
According to the policy measures, the Commissioners of large Taxpayers Unit pointed out that validity period of exemption certificates is automatically generated by IRIS as six months or one year. To quote an example, if the certificate is being issued on 12th February, 2016, the system automatically selects period as 1st January, 2016 to 30th June 2016 which is illegal as tax is to be deducted on the transactions occurred from 1st January, 2016 to 11th February, 2016, before the issuance of the exemption certificate. This issue also creates problems in cases of taxpayers who follow special tax years. It is, therefore, proposed that the start and ending date of validity of exemption certificate may be left at the discretion of the concerned Commissioner Inland Revenue. For this the IRIS team may be asked to provide optional date based tabs in IRIS, the LTU stated.
It was also pointed out that although the 'default text of exemption certificates provides for cancellation of exemption certificate, however, no procedure for cancellation of exemption certificate is available in IRIS. Such cancellation becomes necessary because of availability of new information about the taxpayer, omission/wrong entry in the system and non-payment of valid demand by the taxpayer during the pendency of validity of exemption certificate. It is, therefore, proposed that a cancellation tab may be added and such cancellation should be automatically intimated through notification to all concerned parties/withholding agents of the taxpayer in IRIS, the LTU suggested.
It is also proposed that revision of exemption certificate may also be provided to the concerned Commissioner Inland Revenue in the system in case of any mistake.
In order to facilitate the officers, separate subfolders may be provided for correspondence relating to withholding statements and exemption certificates in inbox, outbox, draft and completed task. It is also proposed that further subfolders may be created on the basis of tax year under all heads in account of taxpayers as well as officers, as with the passage of time number of correspondence is increasing and it is becoming difficult to keep track, the LTU Lahore added.