ISLAMABAD: The Federal Tax Ombudsman (FTO) has recommended the Federal Board of Revenue (FBR) to review regulatory and monitoring regime of banks and implement a speedy withholding tax collection system.
According to an order issued by the FTO on Tuesday, various studies and exercises conducted by tax authorities confirmed major issues in bank’s withholding regime.
In order to recommend corrective measures, an Own Motion investigation was initiated by this forum (FTO).
The FTO has recommended the FBR to review regulatory and monitoring regime of banks withholding so as to ensure that state gets the revenue as and when collected by the bank branches. Current lengthy and complex system of collection and deposit need to be replaced with robust and quick collection mechanism.
The FBR should insert enabling provision in law and devise a mechanism (e.g. an accessible separate portal for collection of taxes) in order to streamline the process of collection of aforesaid taxes by the commercial banks for monitoring of withholding taxes by the field formations.
Commercial Banks in Pakistan normally avoid any type of withholding tax audit. Whereas, FBR’s current withholding Audit regime in banking sector is so far only confined to audit of Withholding Statements filed by the banks; ascertaining identifiable particulars of with holdees so as to broaden its narrow tax base and struggling hard to enforce section 165A of Income Tax Ordinance,2001.
Admittedly, the banks should maintain the general ledger accounts for withholding taxes, with the FBR having constant access to these accounts. To enact this recommendation, it is necessary to insert enabling provisions into the law. The comments of department revealed that although the withholding is done properly to a great extent by the banks, yet, the lack of legislation is a thaw in maintenance of general ledger accounts and consequent accessibility of FBR to these day-to-day accounts. This would ensure stringent monitoring of these Withholding Ledger Tax Accounts, which are specifically for tax deduction and collection. This monitoring is crucial for detecting tax evasion within the bank’s withholding regime, especially under sections like 151 (profit on debt) and other deduction-at-source regimes such as Section 149 (salary), 152 (Payment to Non-resident), 153 (Payment for goods, services & contracts), and 155 (Income from Property). This ensures that every branch of banking companies consistently collects withholding tax and promptly deposits these withheld taxes into the government treasury within the designated timeframe, the FTO order added.
Copyright Business Recorder, 2024