Salary tax deposit failure: FBR initiates Rs2.217bn recovery from PIA

KARACHI: The Federal Board of Revenue (FBR) has issued a recovery notice to Pakistan International Airlines (PIA) after the cash-strapped national carrier deducted over Rs2.217 billion in income tax from employee salaries but failed to deposit the amount into the national treasury, leaving thousands of employees at risk of being classified as non-filers.

According to the details, the Regional Tax Office-II (RTO-II) served the notice to PIA’s finance department, directing it to immediately deposit the withheld tax collected under Section 149 of the Income Tax Ordinance, 2001.

The tax liability has been accumulating since July 2025, in violation of Rule 43 of the Income Tax Rules, 2002, which mandates the timely deposit of all salary withholding tax deducted at source.

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Sources said the airline deducted Rs294.9 million in July 2025, Rs293.41 million in August, Rs297.19 million in September, Rs297.097 million in October, Rs317.348 million in November, Rs351.019 million in December, and Rs366.512 million in January 2026.

However, the PIA, despite regular tax deduction, failed to deposit the same into the government treasury, bringing the total recoverable amount to Rs2.217 billion.

Under Section 149 of the Ordinance, every person responsible for paying a salary is legally required to deduct tax at the time of payment. Under Section 160, any tax so deducted must be paid to the Commissioner within the prescribed time and manner.

PIA’s failure to do so has triggered proceedings that could now extend under Sections 161, 182, and 205 of the Ordinance, which govern penalties for failure to deduct or deposit withheld taxes, sources said. The notice also covers the period from February to June 2026, where deposits either remain unverified or require immediate reconciliation before the close of the financial year 2025-26.

The fallout, however, is not limited to the airline. FBR has separately sent notices to the PIA employees, warning them that if the deducted tax is not deposited into the national kitty, they will be unable to claim it in their Tax Year 2026 returns.

More critically, affected employees risk being excluded from the Active Taxpayers List and reclassified as non-filers, which has significant financial and legal consequences, despite having income tax regularly deducted from their monthly salaries.

To resolve the matter, RTO-II has directed PIA employees to submit copies of salary slips showing gross salary, taxable salary, and tax deducted; salary tax deduction or annual salary certificates issued by the employer; copies of CPRS or PSIDs or equivalent evidence showing deposit of deducted tax; details of any tax credit, adjustment, or refund claims filed based on such deductions; and any other relevant evidence confirming that the deducted tax has been duly deposited or is verifiable in their tax profile. Employees have been given seven days from receipt of the notice to comply.

FBR has further warned that non-deposit or non-verification of salary withholding tax may create mismatches in taxpayer records, hinder processing of tax credit and refund claims, and give rise to avoidable litigation. However, PIA has not yet responded to the notice.

Copyright Business Recorder, 2026