FBR initiates banks’ auditing to verify deducted taxes

KARACHI: The Federal Board of Revenue (FBR) on Friday started auditing of banks to check if they are rightly declaring the deducted amount in lieu of new withholding tax on banking transactions, sources said.
The sources said the tax authority has constituted teams at the Large Taxpayers Unit (LTU) Karachi for the audit of 12 branches of the leading banks located at commercial areas.
The audit is planned under the Section 161 of Income Tax Ordinance, 2001 to know if withholding agents have failed to make payment of the advance tax.
The sources further said the tax officials have identified discrepancies in the withheld tax records of one of the top banks.
They said the officials had obtained data from the banks and would finalise how to recover concealed/un-deducted amount by next week.
The sources said the audit would be conducted to check the payment of withholding tax under the Section 236P, which is related to a banking transaction of above Rs50,000/day and thereof 0.3 percent tax deduction from non-filers of income tax returns.
Tax officials will conduct audit under the Section 175 of the Ordinance that empowers them to enter and search premises.
The sources said FBR had received reports that some banks were misusing the Pakistan Real-Time Inter-bank Settlement System (PRISM) to facilitate individual account holders.
Under the Section 236P, every bank is required to collect advance adjustable tax from a non-filer at the time of transfer of any sum through cheque or clearing, interbank or intrabank transfer through cheques, online, telegraphic, mail, account to account funds, third party account to account funds, real time account to account fund, automated teller machine, or any other mode of electronic or paper based funds transfers, direct debit and internet and mobile phone payments.
However, there is no advance tax under this section in the case of PRISM transactions or payments made for federal, provincial or local government.
The sources said the tax collection has so far been lower than the estimated.
The FBR had estimated around Rs70 billion of tax collection at the rate of 0.6 percent at the time of implementing of the section.
However, the estimate was revised down to Rs35 billion after the tax rate was cut to 0.3 percent.
Tax authorities were expecting around Rs70 billion of the tax collection in the first two months of the current fiscal year. But, the latest estimate till mid of September is around Rs3.7 to Rs4 billion.