ISLAMABAD: The Federal Tax Ombudsman (FTO) has recommended the Federal Board of Revenue (FBR) to provide access of software of banks to field formations for monitoring and recovery of withholding taxes.
According to an order of the FTO office issued on Monday, the FTO has recommended FBR to replicate the exercise under section 161 conducted by Large Taxpayer Office (LTO) Lahore at other field formations holding jurisdiction over the commercial banks in Pakistan so as to plug the gaps in banks withholding regime.
The FBR should conduct thorough analysis and review of the existing mechanism of withholding tax monitoring and suggest remedial measures for course correction so as to maximize revenue generation, FTO maintained.
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The FBR should explore the possibility of access of software of banks to field formations so that corrective action could be taken is real time. This might entail necessary amendment in law and rules, the FTO recommended.
The need for significant improvement in the software employed by the banks for the purpose of monitoring cannot be overemphasized. The department should have access to such software and department should conduct detailed periodic audits with a view to detecting errors/deficiencies in the software and recommending corrective measures. Improvement in the software of the banks will go a long way towards streamlining monitoring mechanism, FTO office maintained.
The FBR should issue clarifications in case of common errors/mistakes detected during withholding audit for the benefit of all the taxpayers and report compliance in 90 days.
FTO recommended that contrary to the assertion of the department, the strategy employed in respect of withholding taxes is far from being robust. Conducting withholding audit under section 161 of the Income Tax Ordinance, 2001 in cases of all banks for every year, though apparently useful in the short term, cannot be relied upon to deliver in the long term.
Detailed audit, by its very nature is conducted in a small number of cases and its purpose is to create credible deterrence rather than revenue generation. Given the sheer number of transactions/entries and voluminous record, it is simply not possible for an officer to scrutinize each and every transaction in view of time constraints and human limitations involved.
The solution lies in developing an advanced automated system which should, in the first place, minimize errors/mistakes at the end of users of software and at the same time enable the tax authorities to pinpoint errors efficiently and in real time. This is the need of the hour and consistent with best international practices, the FTO added.
Copyright Business Recorder, 2024