ISLAMABAD: Auditor General of Pakistan (AGP) has pointed out a major discrepancy in tax collection of the Federal Board of Revenue (FBR) where withholding taxes are wrongly shown under the head of “direct taxes” instead of “indirect taxes”.

The latest audit report of the AGP (audit year 2023-24) revealed that withholding taxes were indirect in nature, but the same were being collected as direct taxes by the FBR.

This means that the withholding taxes, collected in indirect taxes mode, should be shown under the head of indirect taxes of the FBR, a tax expert explained.

Recovery of taxes: AGP unearths Rs737.868bn irregularities

The AGP report revealed that the tax collection under the withholding tax regime relies on the person making the payment by treating him as a withholding agent. Tax collection under this head is easier due to “at source deduction”, therefore, withholding taxes form a major part of the total tax collection, the report said.

Tax collection on account of withholding taxes was Rs1,874 billion against the total direct tax collection of Rs3,271 billion for the fiscal year (2022-23).

In terms of proportion withholding taxes constituted 57 percent of the total direct taxes. Among the ten major components of withholding, withholding taxes on contractual receipts, exports, bank interest, and various other items fall under the minimum tax or final tax regime.

The audit observed that collections under these heads were indirect, but the same were being collected/reported as direct taxes by the FBR.

Moreover, the collections under the heads of telephone bills and purchases of properties were adjustable however, these adjustments were not claimed by non-filers.

The FBR collected Rs1,221.06 billion withholding tax in these heads for the fiscal year (2022-23), which was Rs366.07 billion more than the corresponding period of the last fiscal year.

The increase in withholding tax regime is mainly attributed to increased salary rates, AGP report added.

Copyright Business Recorder, 2024