Data leverage for revenue

For an effective, comprehensive and fair tax system, the availability of real time data regarding major economic transactions is only one critical element in the whole process of converting the data into an actionable information.

The real challenge lies in matching the same with the existing tax data of the person in order to identify mismatches, unexplained sources and tax gaps and to conduct legal proceedings to retrieve tax loss caused through misdeclaration of economic transactions or through use of strategies for tax evasion.

The whole process begins with capturing of data at the real time when transactions are taking place, and goes through to transmitting the same to the databank of the relevant authority where the same is processed, organized and converted into actionable information in accordance with the legal framework and disbursed to the concerned office for initiating legal proceedings within a prescribed timeline and comes to an end at the final step of regular monitoring mechanism for measuring outcomes.

The prevalent tax system has developed an overarching reach to the first two steps of the process which includes capturing of data at real time in respect of all significant economic transactions having substantial revenue impact but the other essential steps culminating at generating analysis and discrepancy reports and their transmission to the relevant quarters have yet to be developed and put in place for leveraging the integrated, processed information for meeting revenue objectives of the organization.

The withholding tax architecture embedded in the tax statute was in fact introduced primarily to capture every economic, financial or investment or fiscal transaction of any significant value at the real time.

The prevalent legal architecture is so overwhelming that it covers all the major areas where economic activity having meaningful revenue impact can be generated by citizens.

Under the moveable properties, cash withdrawals from banks beyond a certain monetary threshold by the persons not appearing as active taxpayers are being subjected to advance income tax. Much the same way, transactions on account of shares and stocks are being captured by the stock exchanges.

As regards purchase of vehicles, tax is being withheld by the registration authorities not only at the time of registration of new vehicles but advance tax is also collected, though nominal, at the time of collection of annual motor vehicle token tax by the relevant authorities.

The other significant areas fall under sale and purchase of immoveable properties which have also been effectively covered under the WHT architecture and any escape without getting registered and documented purchaser or seller or any undertaker is near impossible. An advance income tax has to be withheld at the time the sale transaction is being executed and registered under section 236C on the Income Tax Ordinance 2001.

Similarly, the purchase of an immoveable property has to be subjected to the payment of advance income tax under section 236K. These provisions were brought in to capture the idle income invested in the real estate sector for short term and long-term gains.

The wholesale and retail sectors are other critical areas of the service sector of the economy which get focus of FBR for broadening of tax net. The excuse of the relevant agency for their failure for bringing them into the tax net is that the retail sector is the least documented. But fact of the matter is that that all their business transactions have already been documented through the withholding tax regime.

All manufacturers and importers are obliged by law since Finance Act 2013 to withhold income tax while making sales to the distributors or dealers or wholesalers and document the same and transmit the documented information to the FBR for record and further analysis and leverage.

On the same way, since Finance Act, 2013, advance income tax is required to be withheld in respect of any sales made to the retailers under section 236H. So, all manufacturers, distributors, dealers, wholesalers or commercial importers are legally obligated to document all transactions made to the retailers and wholesalers, including the tax deducted and deposited on their behalf and the data of their transaction is lying idle with FBR.

Any other significant commercial transaction which can have impact on revenue has also been subjected to withholding advance income tax at the time of payments for documenting purposes and for further use for developing backwards and forward linkages with the tax record of the undertakers. This includes advance tax withholding at the time of making payments on account of functions and gatherings including weddings, sale by auction, paying brokerage and commission, cash withdrawal from banks above certain monetary limit for a person not existing on Active taxpayers’ list, and payments made against electricity, telephone/internet.

All major payments other than the transitional transactions mentioned above have earlier been covered through separate provisions of law respecting deduction and collection of taxes. Payments made to the salaried individuals have been captured through section 149, and profit on debt to residents has been documented through section 151 on the principle of ‘pay as you earn’.

All payments made to the non-residents on account of profit on debt, royalty, fee for technical services rendered and contracts including project contracts have been comprehensively covered under section 152 are also liable to income tax withholding. Furthermore, all transactions of imports and exports are subjected to advance income tax under sections 148 and 154 respectively and the information of transactions is documented and transmitted to the FBR for further use.

Major sources of payments to the resident taxpayers on account of supply of goods, services rendered and various contracts have been covered under section 153. In addition, income received on account of rent of a property is squarely covered under section 155. So much so that commission or discount on sales of petroleum products to the petrol pump operators is also taken care of under section 156A.

All these instances of payments illustrate that all fiscal transactions having any significant economic value have comprehensively been bound by the withholding tax architecture so howsoever that no transaction remains out of the focus of the tax authorities.

Not only is information of these transactions immediately transmitted to the FBR through CPRs and other valid modes of tax payments but compliance is further reinforced through the tax law, which entails a legal mandate and prescribes a mechanism for transmitting the detailed data of such transactions to the tax authorities for analysis and monitoring compliance.

All withholding tax agents and collectors of advance payments are legally obligated under section 165 to furnish monthly, quarterly and annual statements to the FBR and the concerned field formations.

Since 2013, all banks have also been bound by section 165A to transmit data of certain transactions to the FBR within a prescribed timeframe. In addition, data transmission protocol has also been signed between FBR and NADRA and sometime in the past we heard that information on ‘indicative income’ of potential taxpayers was also shared by the latter with the former.

The legal and factual instances stated above go to reinforce the premise that there is no dearth of data on various economic transactions of the citizens with the relevant authorities. The same lay piled with FBR on almost every significant economic transaction having meaningful revenue potential.

However, converting the data into an actionable information and timely remitting the same to the relevant tax authority for legal proceedings constitute the main challenge to FBR. Despite launching an extended WHT regime since the 1990s, no effective and integrated digital mechanism could be developed for processing, organising and analysing the data into discrepancy reports.

At the time when FBR is on the path of digital transformation it is all the more critical that a robust digital analysis system be developed for analyzing, processing and organizing the available data treasures of economic transactions for leveraging the actionable information for collecting due taxes and expanding the tax base and for timely intervention for limiting tax evasion and transfer pricing challenges.

Copyright Business Recorder, 2025