The Federal Board of Revenue (FBR) has started strict monitoring of withholding tax collection/deduction from supplies/sales, contracts, imports, salaries, telephone, export, bank interests/ securities, cash withdrawals, dividends and electricity to improve collection in 2012-13.
According to the withholding tax plan issued by Rehmatullah Khan Wazir, the Chief Commissioner of Large Taxpayer Unit (LTU), Karachi, prioritised areas for monitoring of withholding taxes have been identified. The plan of LTU Karachi has been implemented by the FBR at all Large Taxpayer units and Regional Tax Offices.
According to the plan, major chunk of the direct tax revenue comes from withholding taxes which are both adjustable and presumptive in nature. Despite this large contribution of withholding taxes to the public exchequer, there is an ample scope to enhance the collection under this head which is evident from the fact that during the Fiscal Year 2011-12 an amount of Rs6,119 million was raised by LTU, Karachi alone on account of non-deduction/short deduction of withholding taxes in cases assessed by the Unit.
The plan said that ten major withholding taxes which contributed around 90 percent of the total withholding collection are: collection/ deduction from supplies/sales, contracts, imports, salaries, telephone, export, bank interests/ securities, cash withdrawals, dividends and electricity.
Monitoring of withholding taxes is, therefore, of paramount importance when it comes to Bench marking of the performance of the enforcement wing of Field Formations of Inland Revenue Service (IRS) of FBR.
The analysis of withholding statements in relation to the statement of accounts filed along with the returns and enforcement of collection from the defaulting withholding agents along with the default surcharge is the key function to be performed by the enforcement wing of each zone.
Various factors need to be taken into account while initiating the monitoring process of withholding taxes in the cases of withholding agents.
The plan also highlighted punitive provisions for non-compliance of withholding tax laws. There are sufficient provisions in the Income tax Ordinance, 2001 which provide for action against the withholding agent in case of non-compliance of the provisions of law relating to withholding taxes and filing of monthly and annual statements of tax collected and deducted.
Under Section 21 of the Ordinance 2001, in case of non-withholding of tax at source the following expenditures are not allowed as deduction for the purpose of computing income under the head business & profession under the Income Tax Ordinance, 2001: Salary, Rent, Brokerage or commission, Profit on debt, Payment to non-resident, Payment for services or fee and payment for purchase of goods and contractual payments etc this provision is to be applied by the Audit Wing of the zone.
As per Section 161, the person responsible for collecting or deducting tax at source as a withholding agent, is personally liable to pay the amount of tax not collected or deducted as if it is due under an assessment order under the Income Tax Ordinance, 2001.
Similarly, the tax collected or deducted, if not paid, is also payable recoverable as if it is due under an assessment order under the Income Tax Ordinance, 2001 personally from the person responsible to collect or deduct the tax at source as withholding agent, plan said.
As per plan, it has explained charge of Additional Tax under Section 205 of the Income Tax Ordinance. In addition to the principal amount of the tax to be collected or deducted at source by the withholding agent, a further tax "additional tax" is also payable at the rate of 12 percent per annum on the amount of tax not collected or deducted or having collected or deducted but not paid computed for the period commencing on the date the amount was required to be collected or deducted and ending on the date on which it is paid.
Under Section 182 of the Ordinance 2001, any person responsible for collection or deduction of tax at source as a withholding agent, without reasonable excuse, fails to furnish, within the time allowed for this purpose, any statement(s) of tax collected or deducted due under Section 115 or 165 is liable for a penalty of equal to 0.1 percent of the tax payable for each day of default subject to a minimum of Rs5,000 and maximum of 25 percent of the tax payable for that year.
The FBR will invoke prosecution provisions of Section 191 of the 2001 Ordinance, wherever applicable. Any person who, without reasonable excuse, fails to comply with the obligation to collect or deduct tax or having collected or deducted fails to pay the tax shall tantamount to committing an offence punishable on conviction with a fine or imprisonment for a term not exceeding one year, or both.
The FBR has issued Brochures from time to time on withholding taxes which not only explain in detail various provisions of the Income Tax Ordinance, 2001 on withholding taxes, but also identify various withholding agents which are obliged to deduct and collect withholding taxes as per provisions of the Income Tax Ordinance, 2001. The Brochures are available on FBR's website. These Brochures are of great benefit not only to the field formations but also all taxpayers in general and to the withholding agents in particular, plan of LTU Karachi added.