The Directorate General of Intelligence and Investigation Inland Revenue Federal Board of Revenue (FBR) has directed the Large Taxpayer Units (LTUs) Lahore and Islamabad to complete audit of banks falling in their jurisdiction after extraordinary performance by Large Taxpayer Unit Karachi.
Sources told Business Recorder here on Friday that the directorate has issued instructions to the LTUs of Lahore and Islamabad to complete withholding tax audit of banks without further delay. According to sources, the random withholding audit of selected banks was one of the key parameters of the action plan of the Directorate General of Intelligence IR which enabled the LTU Karachi to recover over Rs 4.2 billion withholding tax from banks. Board-in-Council had given the mandate to the agency for audit of banking sector.
The issue came to the light before the council as withholding statements filed by the banks u/s 165 were mostly incomplete and some vital columns were left blank. There were cases of non-filing of statements, especially with respect to section 23lA and 231AA of Income Tax Ordinance, 2001. The State Bank of Pakistan and office of the Auditor General Office had repeatedly pointed out (through inspection reports/audit paras) instances of non/delayed payment of taxes withheld by the banks. The random checking of individual bank branch record by LTUs Islamabad and Lahore revealed cases of serious default and non-compliance of statutory provisions. There was also a visible decline in payments, especially u/s 151(1) (b), 231A and 231AA vis-à-vis collection of last year and the budget projections.
Keeping in view the above factors, the Directorate General I&I had evolved some basic parameters and a unified strategy to address the prevailing snags in bank withholding regime. The parameters drafted by the agency were followed by the LTU Karachi and LTUs of Lahore and Islamabad.
Sources said that the directorate had enforced a comprehensive strategy following the decision of the Board-in-Council to conduct withholding tax audit of the banking sector. In this regard, the directorate had drafted basic parameters of bank''s withholding tax audit as per Board-in-Council decision. As a result of enforcement action plan, the agency was in a position to recover huge amount of short-deducted withholding tax or default of the levy from certain banks.
Sources said that without regular and round the year monitoring, fully backed by complete desk audit of withholding statements and snap audit of selected bank branches, tax withholding cannot be streamlined in this high tax potential sector. The current monitoring mechanism, prevailing patterns of withholding statements, and collection trends as compared to last year were also examined by the directorate.
Before initiation of audit of the banks, the DG I&I IR had drafted basic parameters of bank''s withholding audit. As per parameters, all prescribed withholding statements shall be enforced properly. The Large Taxpayer Units (LTUs) would take immediate cognisance of incomplete/deficient withholding statements.
The parameters said that the desk audit of all withholding statements filed by the banks/DFIs would be mandatory at LTUs. The verification of collection reported in withholding statements would be conducted by LTUs so as to ensure proper deduction and timely deposit.
Other parameters included data/information contained in withholding statements to be shared with RTOs for the purposes of broadening the tax base (BTB), identification of non-filers and cases of under reporting. All withholdees are liable to be registered under Sales Tax Act 1990. The random withholding audit of selected bank branches of all Banks/DFIs would be conducted so as to ensure that taxes are being deducted and deposited in accordance with the provisions of law.
At least one percent of the branches of each Bank need to be audited. Total number of all bank branches across the country is around 9,600 so around 100 branches can be short listed for withholding audit, parameters said. For the selection of bank branches, tax potential should be the main criterion. However, particular heads of deductions can be focused on particularly.
Keeping in view the physical limitations of LTUs, at other urban centres and outstations audit teams can be constituted by LTU in consultation with the concerned Chief Commissioners of the RTOs. In such cases commissioners LTUs can delegate specific powers to the mutually agreed teams at respective RTOs. Three-member audit team headed by an officer (BS 18/17) with two officials (BS 14/16), one each with income tax and sales tax background would conduct the withholding audit.
Keeping in view the sensitive nature of banking sector, concerned banks may be taken on board. The parameters further stated the whole exercise need to be conducted with extreme caution and courtesy. The LTU Karachi would request State Bank of Pakistan to provide details of inspection paras framed by Banking Inspection Department of SBP during the last five years, containing default of banks on account of non-withholding or under-withholding. Once this valuable information is received, the same may be shared with the concerned LTUs/RTOs for further necessary action.
Audit of bank branches under income tax and sales tax need to be conducted by field audit teams, whereas for FED Banks Head Offices need to be conducted. The strategy for Bank''s/DFIs withholding audit needs to be conducted in an organised manner. In case of income tax, the section 149 of Income Tax Ordinance, 2001 needs to be considered to check whether tax is being deducted on gross.