On the explicit directions of Federal Board of Revenue Chairman Mumtaz Haider Rizvi, the Directorate of Intelligence and Investigation Inland Revenue (IR) has decided to start countrywide exercise to verify deduction and payment of withholding taxes by the National Saving Centres of the Central Directorate of National Savings (CDNS).
Sources told Business Recorder here on Monday that the exercise would be started in March 2012 with expected revenue potential of Rs 3-4 billion. Tax authorities have assigned the task of withholding checks of the NSCs to the directorate of (I&I) IR keeping in view positive results of banking audit which helped in recovery of over Rs 4.5 billion from banking sector last year. In this connection, the FBR has decided to convene a meeting of all relevant officials of Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) at the FBR House here on Tuesday (February 28) to chalk out a uniform strategy to conduct checks of deductions and payments of withholding tax by the NSCs. A consensus would be developed among the tax officials to adopt a uniform policy for launching the exercise on national level.
Sources said that the purpose of the exercise is to firstly educate the concerned officers of the NSCs about the relevant provisions of the Income Tax Ordinance 2001 pertaining to withholding tax. The tax department would collectively chalk out an effective strategy to update the officers of NSS about the relevant provisions about the deductions and timely payments of withholding tax on profit earned on different saving schemes. The legal provisions would be thoroughly studied during the meeting at the Board. Under the exercise, the tax officers would provide copies of the relevant provisions of the law to the NSC's officers and guide them about the applicability of the tax laws for collection of tax on saving schemes. The lack of knowledge about the relevant provisions of the law is a major issue and tax authorities are well aware of this situation. It is very important to take the CDNS on board before launching the exercise from March 2012.
The withholding check exercise would primarily focus on four major areas in the NSCs. Firstly, it would be checked whether the withholding tax has been deducted by the NSC or not. Secondly, it would be seen whether the tax has been deducted as per relevant provisions of the law. Thirdly, it would be examined whether the tax has been timely deducted. Fourthly, it would be also checked whether the deducted amount has been properly deposited in the national kitty.
The whole exercise of the directorate is not to indulge in any kind of punitive action against the NSCs but to guide the concerned officers on the relevant law to ensure compliance of the withholding tax provisions by the concerned officers, sources said.
Sources said that the directorate had last year unearthed non-compliance of withholding tax provisions by certain banks. Similar kind of snags has been reported in the national saving scheme (NSS) regime. During broadening the tax-base exercise, the directorate has found that a person has deposited over Rs 1 million as tax on profit earned from saving schemes of the NSC. The scrutiny of data by the BTB Unit of Lahore detected that a person has declared saving certificates of the NSS as source of investment. When the data was further analysed it was found that the amount of withholding tax has not been deducted on the profit earned from saving schemes. This clearly reflects that the concerned withholding agent has not deducted the due amount of tax on profit earned through the NSS. The non-deduction as well as non-payment of tax is visible in this specific case. If Rs 1 million of tax has not been deducted in one case, the overall volume of non-compliance is much wider on national level.
In another case, Regional Tax Office Faisalabad has started an exercise to check that the NSCs falling within the jurisdiction of the RTO are deducting and depositing the due amount of tax. The RTO has detected that the 75 percent of the profits earned through the saving schemes has been declared as exempt. This shows that 75 percent of the cases are not subjected to withholding tax in case of RTO Faisalabad. The directorate has reasons to believe that the tax has been deducted but the same has not been deposited in the national exchequer.
Similar kind of examples has been witnessed at other cities by the directorate, sources maintained. Thus, the exercise of withholding checks by the directorate would not only educate the concerned officers to proper deduct the tax but also be instrumental in improving compliance by the NSCs across the country. However, the tax officials would give due respect to the NSC's officers while informing them about the relevant tax provisions and ensure verification of the amount involved in deduction and deposit of the tax applicable in cases of various NSS.