ISLAMABAD: In addition to new taxation measures, the Federal Board of Revenue (FBR) has implemented a new withholding tax plan on national level to generate additional revenue for meeting revised target of Rs 2,231 billion in 2012-2013. Sources told Business Recorder here on Sunday that the new plan has been chalked out by Rehmatullah Khan Wazir Chief Commissioner Large Taxpayer Unit (LTU) Karachi.
The plan has been implemented at all LTUs and Regional Tax Offices (RTOs) through effective strategy for generating additional revenue from the withholding agents. An immediate penal and prosecution action would be taken against the defaulted withholding agents under Income Tax Ordinance 2001, sources said.
The FBR has further directed the field formations to ensure enforcement of the plan at each LTU/RTO which would be instrumental in collecting additional revenue from withholding agents. The FBR has appreciated the strategy formulated by Rehmatullah Khan Wazir.
According to the plan of LTU Karachi, the process of monitoring of withholding taxes can be categorised into two portions ie desk monitoring/audit of withholding agents and field monitoring/audit of withholding agents.
Desk monitoring/audit revealed that monitoring may be carried out by the officers and officials of Enforcement & Collection Wing of a Zone in their offices. It should be done only for those tax years in which returns of income have already been filed. The information regarding quantum of various payments and the amount of withholding taxes under each head in the monthly/ annual statements should be matched and verified from the figures reflected in the debit site of the manufacturing, trading & profit & loss account. The payment under each head appearing in the monthly/ annual statement of withholding taxes should be compared with the amount of the said head reflected in the statement of account viz. manufacturing, trading & P&L Account filed by the taxpayers with the return. For instance, a taxpayer has claimed amount of Rs 20.000 million under the head "Salaries", in the profit & loss account for the Tax Year 2012 and the monthly/ annual statement for the same period shows salaries of Rs 10.000 million on which tax has been deducted by the taxpayer as withholding agent which means that the balance amount of Rs 10.000 million has to be checked as to why this amount was not subjected to tax.
This means that either the withholding agent has paid below taxable limit salaries to its employees or has not deducted tax from the salaries properly. In either case the amounts and their nature has to be checked both for the purposes of action U/S 161 and 205 of the Income Tax Ordinance, 2001 by treating the withholding agent as taxpayer in default and by levying additional tax by the E&C Wing of each Zone in case the default is proved. Penal action U/S 182 and prosecution action U/S 191 may also be initiated by the E&C Wing. For the purpose of action under section 21(b), 21(c), 21(f), 21(I), and 21(m) of the Income Tax Ordinance, 2001 the case has to be reported by the E&C Wing of the Zone to the Audit Wing of the Zone for disallowing the claim of expenses at the time of making assessment. In case tax was deductible but the same was not deducted, the entire amount may be disallowed by invoking the aforesaid provisions and added to the income of the taxpayer (withholding agent) by the Officer of IR of the Audit Wing at the time of making assessment. Similarly, if salary paid exceeds Rs 15,000 per month then by cross-cheque it may be disallowed U/S 21(m) and added back to income of the taxpayer by officer of the Audit Wing, plan said.
All types of payments by the taxpayer (withholding agent) may also be checked and verified from the bank statements of the same period for the purposes of action U/S 21 of the Income Tax Ordinance, 2001. If any expenditure made under a single account head exceeds in aggregate of Rs 50,000 otherwise, then by a cross-cheque or through other banking channels the same shall be disallowed U/S. 21(1) of the Income Tax Ordinance, 2001 by the Officer IR of the Audit Wing at the time of making assessment of the withholding agent as taxpayer. Similarly, each and every entry of debit side of manufacturing, trading, profit & loss account accompanied with the taxpayer's return for Tax Year may be examined at desk and cross checked from its corresponding entries as reflected in the monthly/annual statement of withholding taxes furnished by the taxpayer as withholding agent for the same Tax Year, plan said.
As per plan, the explanation of the withholding agent should be sought on the differential amount (Total amount under each head of payment claimed in the Trading or P&L Account - the amount from which tax was deducted) and action U/S.161, 205, 182 & 191 shall be initiated by Officer of Inland Revenue of the E&C Wing if the amount is not covered by exemption certificate and in case if the default of non-deduction/ non-collection of tax is proved, it added.
The plan has also explained the second category of monitoring ie field monitoring/audit of withholding agents. In this type of monitoring teams comprising one Officer of Inland Revenue and two Field Officers (Inspectors) may be sent to the field by E&C Division for monitoring of withholding taxes. This exercise may be carried out in those cases where defaults of non-deduction have been found during the desk monitoring and it should be done for the running tax year ie tax Year 2013. For instance monthly statement has been filed under section 165 on January 15, 2013 for the month of December, 2012 and similarly for each of the preceding months. Figures of various types of expenses, raw-material purchases and all type of payments made by the withholding agent should be tallied with the bank statements for the same period requisitioned from the withholding agent. There is very little possibility that any amount of payment would have been made by the withholding agent (payer) outside its bank statements because if there is any such payment, the same will be hit by the mischief of the provision of section 21(l) of the Income tax Ordinance, 2001. During such monitoring one would find that the amounts of various payments reflected in the bank statements are much bigger than those in the six monthly statements (now filed separately for each month under section 165) for the same period. This way the entire amount of payments made by the payers (withholding agent) can be checked and the explanation of the payer can be sought as to why tax was not withheld on each and every transaction when the law requires it.
Under normal circumstances there would be very rare need for any further examination of books of accounts. All those payments which are reflected in the bank statement of the first six months but not reflected in the monthly statements and for which the payer (withholding agent) fails to furnish any explanation such as production of exemption certificate or otherwise specific exemption under any provisions of law should be identified and quantified for action u/s.161, 205 and 191 of the Income Tax Ordinance, 2001. The cases where action under the provisions of Section 21(b), 21(c), 21(f), 21(1) & 21(m) is required may be reported to Audit Wing on future assessment in withholding agents and taxpayers' cases. During field audit of withholding taxes the team should check the correctness and veracity of mechanism and method adopted by the withholding agent for withholding taxes. It should be done by examining the payments being made by the withholding Agent at the time of audit and during the last/preceding few days. If the taxpayer faces difficulty in complying with the withholding tax laws it should be properly guided and facilitated to make full/proper compliance of the tax laws while collecting withholding taxes at the time of making payments to various deductees, the plan added.