The Federal Board of Revenue (FBR) has decided to establish a specialised unit at its headquarters for effective monitoring of withholding taxes on national level.
Sources told Business Recorder on Wednesday that FBR Chairman M. Abdullah Yusuf has approved the proposal of Member Direct Taxes Usman Khalid Mirza to create a unit/establishment at FBR House, Islamabad to monitor withholding taxes.
Sources said the entire process of withholding tax collection would be monitored under the new system. In this regard, a detailed mechanism is in the final stages. The system would analyse whether the withholding taxes are accurately being deducted and deposited in the national kitty. The monitoring of withholding agents is one of the key features of the new system. The procedure would also check whether the persons have been able to properly obtain credit of the due amount.
There are cases where the income tax officials failed to take action against the defaulter withholding agents, who are neither filing statements nor depositing the collected tax into the national exchequer.
It is worth mentioning that the board had repeatedly issued instructions to the field formations to strictly monitor banking companies, financial institutions, foreign exchange dealers, consortiums/co-operative societies, and other withholding agents entrusted to collect/deduct tax under the Income Tax Ordinance, 2001. The board had deputed tax officials to identify withholding agents who failed to collect tax, but it seemed no visible progress has been witnessed in this regard.
Now, a computerised system is likely to be in place at the FBR House, which would become operational in due course of time, sources added.
According to a FBR analysis, the withholding tax share in gross income tax collection has declined from 57.3 percent in 2005-06 to 49.2 percent in 2006-07, but the magnitude of the overall collection has increased since 2005-06. In absolute terms, Rs 170.7 billion has been collected from this source against Rs 139.6 billion during last year, showing a growth of 22.3 percent.
The decline in the share of withholding tax in total gross income tax has been due to the fact that voluntary compliance has improved at much faster rate than the increase in WHT. However, notwithstanding this rationale, the outcome is consistent with the overall policy environment that envisions less reliance on WHT and promotion of voluntary compliance.
The board said it is evident that deduction on contracts and supplies is the major source of revenue generation. Given that the pace of economic development and government spending is expected to increase further in coming years due to higher PSDP allocations, this source will continue to hold dominating position for quite some time to come. This source is followed by deductions on international trade activities.
The combined share of withholding tax on imports and exports of about 22 percent is indicative of a position that by and large, traders are 'satisfied' with the present presumptive and adjustable withholding tax regimes. Deductions in salaries continue to constitute nearly 10 percent of withholding tax receipts in 2006-07.
The deductions in electricity bills and telephones on one hand, and on cash withdrawal and bank interest on the other. The revenue analysis of the components of withholding taxes confirms that most of the WHT heads have performed according to their respective tax bases, the board added.