ISLAMABAD: The Federal Board of Revenue’s field formations have issued frivolous tax recovery notices to the salaried individuals to generate additional revenue and raise illegal tax demands against the already overburdened salaried class.
Leading tax experts told Business Recorder that the Large Taxpayer Offices (LTOs) and Regional Tax Offices (RTOs) are facing immense pressure from the FBR to meet assigned monthly targets.
The heavily-taxed salaried class has also started receiving so-called show-cause notices from the FBR’s field formations for recovery of taxes under Section 162 of the Income Tax Ordinance on the basis of excess claim/deduction of tax on salary under Section 149 of the Ordinance 2001.
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Astonishingly, the tax department of Karachi has directed one of the salaried individuals to submit copies of computerised payment receipts (CPRs) deposited by his employer.
“Otherwise, the difference amount of claimed/excess deduction of tax shall be recovered from the salaried individual under the provisions of Section 162(1) of the Income Tax Ordinance 2001”, the show-cause notice added.
The astonishing part of the story is that the electronic notice has been issued to the taxpayer on January 28, 2025 with the compliance deadline of “on or before January 31, 2025” i.e. only a two days’ period.
Tax experts said that the tax on salaried class is being deducted on a monthly basis by the employer. At the end of each fiscal year, the employer gives “annual tax deduction certificate” to the employees.
How, a salaried individual could ask his employer to give copies of CPR deposited in banks. This is harassment and unacceptable, they said.
Referring to the show cause notice for tax recovery under Section 162 of the Ordinance on the basis of excess claim/deduction of tax on salary under Section 149, top tax expert Dr Ikramul Haq stated that the said notice is patently unlawful and offensive of legislation. This is an illegal notice, he added.
A valid tax return in this case constitutes an assessment under Section 120 of the Income Tax Ordinance of 2001. Such an assessment as per established law tantamount to a vested right in favour of taxpayer.
Assessment can only be unsettled by way of audit under Section 177 or by issuing a notice by Additional Commissioner under 122(5A) if there is an error which is apparent from record and is also prejudicial to interest of revenue. Notice under Section 162 after completion of assessment is naked harassment besides untenable under the law, Dr Ikramul Haq added.
Another tax adviser explained that without any legal mandate, the FBR field formations including Karachi have started issuing recovery notices to the employees alleging that their employer has made short deduction under Section 149 of the Income Tax Ordinance, 2001.
Whereas, the department cannot initiate recovery proceedings against the employees in case the employer has either made short deduction or non-deduction; however, contrary to the legal framework provided in Section 161 of the Income Tax Ordinance, 2001, the department has started issuing notices for recovery of short deduction from employees.
He stated as per Section 161, if there is short deduction or non-deduction by the withholding agent then order is passed against the withholding agent, and tax is recoverable from the withholding agent besides disallowance of expenses claimed.
However, in case after passing such an order under Section 161 the tax cannot be recovered from the withholding agent only then an order can be passed under Section 162 requiring the employee to pay the tax.
As per tax expert, if a withholding agent has been provided with evidence by the employee that certain tax credit are available which reduces his tax liability or there is tax deduction during the tax year under other heads like on purchase or sale of property, on mobile bills, on internet connection and vehicle token tax then withholding agent is justified to account for those tax deductions and deduct lesser tax from the salary.
Without issuing show cause notice under Section 161(1A) to the withholding agent and passing order under Section 161(1) by taking due consideration of the reasons for short deduction the department is not justified to issue notice to the employee to pay the tax which is claimed to be short deducted.
When contacted Shahid Jami, a tax lawyer explained that there are instances where the withholding agents have deducted tax but the same has not been deposited in the government treasury.
However, the employee or the supplier has been issued a certificate indicating the tax deduction even in such cases the Appellate Tribunal Inland Revenue has held that proceedings should be initiated against the withholding agent and after recovery from them the credit of tax payment be given to the concerned taxpayer.
Another tax lawyer Waheed Shahzad Butt stated that the FBR has adopted a perplexing strategy to harass salaried taxpayers, coercing them to produce tax payment receipts (CPRs) that have already been deducted by their employers.
In a surprising move, instead of holding employers accountable for the deducted taxes, the FBR has initiated proceedings under Section 162 of the Income Tax Ordinance, 2001, against the salaried taxpayers themselves.
This arbitrary action has caused undue distress and hardship for countless individuals.
This approach not only contradicts the principles of fairness and justice but also reflects a lack of understanding of the tax deduction mechanism at source.
It is imperative that the FBR revisits its strategy and directs its efforts towards ensuring employers fulfil their tax obligations rather than penalising innocent taxpayers working as salaried persons, the tax lawyer maintained. These unwarranted notices to the salaried taxpaying class, creating undue stress and frustration among compliant citizens.
The indiscriminate nature of these notices not only erodes trust in the tax system but also places an unjust burden on salaried individuals who are already contributing to the nation’s fiscal health and that too more than their fair share compared to others.
Such actions by the FBR appear to result from inefficiencies within the tax administration. This undermines the credibility of the tax system and exacerbates the already strained relationship between taxpayers and tax authorities.
The FBR needs to ensure that notices are only sent when truly warranted, safeguarding the integrity and respect of the institution and its officers, Waheed Shahzad Butt added.
Copyright Business Recorder, 2025