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ISLAMABAD: The Federal Board of Revenue (FBR) has informed the Federal Tax Ombudsman (FTO) that all bank branches have now implemented a real-time online/computer-based reporting system and recording of withholding taxes.

According to a report of the FBR submitted to the FTO on the monitoring of withholding taxes by the banking sector, as regards the strategy in respect of monitoring of withholding taxes in the banking sector, the FBR submitted that field formations have conducted random system audits of the banks falling under their jurisdiction from time to time by visiting the head offices and branches of these banks.

It was observed that all the branches of banks have now implemented real-time online/computer-based reporting system and recording of withholding taxes.

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The withholding taxes deducted are reported in real time to the head offices of the banks and the head office deposits the tax into government treasury within the stipulated time period.

The FBR report stated that the banks are regularly filing statements under section (u/s) 165A of the Income Tax Ordinance 2001 now which contains information of all banks’ clients and the taxes deducted from all such clients.

Besides, banks also regularly file statements prescribed under section 149/165 of the Ordinance.

“Besides Banks have shown reservation regarding legal aspects of real time access on the grounds that the General Ledger is not an FBR account and FBR cannot have real time access as a matter of right. The Banks have maintained that the FBR is a regulator of income tax and banks are under obligation to deduct and deposit tax as per provisions of Income Tax Ordinance, 2001 any other requirement would be beyond the express provisions of law,” the FBR report submitted to the FTO revealed.

Now, the banks are regularly submitting the statements u/s 165A of the Ordinance monthly/annually, as the case may be, directly to the Board through online portal on the prescribed format.

He further stated that the Board is the custodian of such data, which is shared with field formations to broaden the tax base as well as to recover any default amount of withholding taxes wherever warranted.

The Director General, (Withholding), FBR also filed written comments wherein, they raised the identical objection in respect of jurisdiction of the FTO office to initiate Own Motion on the ground that the subject Own Motion does not arise out of any specific complaint or instances of maladministration, neglect, inattention, incompetence, inefficiency and ineptitude.

The FTO has initiated these proceedings at its own, and as such are not caused by any specific complaint filed by any aggrieved person therefore it is barred by the limitations and the jurisdiction of the FTO Ordinance, 2000.

Furthermore, on merits, the DG submitted comments and stated that in the subject own motion complaint, it is alleged without any specific evidence and study that the banks usually do not pay proper withholding taxes and the field formations do not have proper mechanism or strategy to monitor the withholding taxes of the Banks.

In the absence of any specific study or exercise conducted the assertion of tax evasion in banking sector withholding regime is vague, hypothetical and based on assumptions. Withholding audit of banking sector is held on regular basis.

Proper audit is conducted on withholding of various sections of the Income Tax Ordinance, and orders u/s 161 are passed wherever any default is observed, Director General, (Withholding), the FBR added.

Copyright Business Recorder, 2023


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