Incorrect Computation by FBR Costs Rs 16.84 Bln Withholding Tax Loss

Fri May 17 2024
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ISLAMABAD: An audit report issued by Auditor General of Pakistan for the Year 2018-2019 has uncovered a substantial loss of revenue attributed to withholding income tax issues, totaling Rs. 16.847 billion within the banking and financial institutions sector for the tax years 2016 to 2018.

The audit report highlighted critical issues such as incorrect computation of income and tax, as well as the non-deduction of tax on various income types, including commission, brokerage, rental income, profit on debt/interest, dividends, and capital gains from shares.

The withholding tax regime, a global phenomenon, has become a major source of federal revenue collection in Pakistan. Over the years, both the collection and reliance on withholding taxes have increased significantly. Withholding tax, which involves the deduction or collection of tax at the source as an advance payment, serves as an effective and timely revenue mechanism, contributing approximately 72% of the total direct tax revenues.

To address these issues, the report recommends that the tax department implement adequate regulations and procedures to close loopholes in the universal self-assessment system. This includes ensuring effective checks on assessment, collection, and proper allocation of revenue. The department should also aim to reduce the revenue losses resulting from taxpayers claiming unentitled benefits and work towards recovering losses due to incorrect tax computations.

Furthermore, the report emphasizes the need for a robust internal control system for effective monitoring of tax collection, assessment, and outstanding recoveries or arrears. Ensuring these measures are in place will enhance the efficiency and reliability of the withholding tax regime, securing vital revenue for the country.

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