Withholding agents ‘Reconciliation of statements with declared amounts a must’

ISLAMABAD: The Finance Act 2021 has made it mandatory for the withholding agents to reconcile annual withholding tax statements with the amounts declared in the return, audited accounts or financial statements by the due date of filing of return of income.

Asif S Kasbati, ICAP Fiscal Laws Committee Member and PBC Core Tax and Legal Committee Member told Business Recorder that the Finance Act 2021 made it compulsory to e-file in prescribed form reconciling the amounts mentioned in annual withholding statement with the amounts declared in the return, audited accounts or financial statements by the due date of filing of return of income as provided under Section 118 of the Income Tax Ordinance 2001.

He stated that “Reconciliation of payments be made by all withholding tax agents for the entire tax year (as reported in the Annual Withholding Tax Statement in respect of all types of payments subject to withholding and collection of tax)” with “the amounts declared in the return of income, audited accounts or financial statements”.

The reconciliation is required to be filed mandatorily by the due date of filing the return of income as specified in Section 118 i.e. (a) Individual; AOP by 30 September (b) Company having normal tax year viz July 1 to June 30 by 31 December, (c) Company having special tax year by 30 September.

Kasbati added that the above requirement seems as a proactive approach of the FBR of obtaining, in advance, the Reconciliation Statement as prescribed under Rule 44(4) of the IT Rules whereby, a person required to furnish the statement under sub-rule 11(2) shall, wherever required by the commissioner, furnish a reconciliation of the amounts mentioned in the aforesaid biannual statements with the amounts mentioned in the return of income, statements, related annexes, and other documents submitted from time to time.

Prior to Finance Act, such reconciliation was required by the tax officers pursuant to Rule 44(4) during monitoring of withholding tax proceedings or during audit.

The said amendment may result in increasing the Accounts Department work at initial stages, however, may reduce work at a later stage, when the notice will be received from the Tax Department whereby taxpayers were being asked to submit similar reconciliation as per the formats given in the notices or without format.

Depending upon the format to be prescribed, this information may also be used for effective monitoring of withholding tax deductions and to monitor compliance with the provisions of Section 21(c).

This reconciliation will be applicable for any accounting period starting from 1 July 2021, Kasbati concluded.

Copyright Business Recorder, 2021