Rs 2.5 billion income tax demand raised: FBR to conduct system audit of banks, PAC told

The Federal Board of Revenue (FBR) has raised income tax demand of around Rs 2.5 billion against certain banks falling within the jurisdiction of Large Taxpayer Unit (LTU) Karachi, and an amount of nearly Rs 1.82 billion has been recovered from the banks.
FBR Member Enforcement and Accounting Fayyaz Khan told the Public Accounts Committee (PAC) during review of audit reports (2008-2009) here on Wednesday that the Board is planning to conduct system audit of banks, instead of focusing merely on withholding audit. The withholding desk-audit is a regular feature of the department to detect the payable amount. The exercise of the system audit would be completed in one-month period and report would be submitted to the PAC. However, he assured the committee that the system audit of banks would be conducted without further delay.
The Auditor General of Pakistan (AG) office presented a performance audit report on withholding taxes, detecting revenue loss to the tune of Rs 29 billion due to non-applicability of the withholding tax provisions in different cases under the Income Tax Ordinance 2001.
According to the report of the AG office, the withholding tax constitutes about 60 percent of direct tax revenue. The Income Tax Ordinance, 2001 provides various sections relating to deduction of tax at source. Test check was applied in only four sections which pointed out potential tax loss of Rs 29,114 million. Had the entire data been available, the amount of loss would have been manifold against that pointed out by audit, AG office said.
The report pointed out that short recovery of tax on profit on debt resulted in revenue loss of Rs 13,696 million. The audit examined 24 banking companies and national saving centres who paid profit of Rs 219,877 million to their clients during 2007-08. The withholding tax @ 10 percent worked out to be Rs 21.987 million but instead Rs 8.291 million were deposited in government exchequer as reported by the FBR.
The departmental accounts committee (DAC) discussed the issue at length and examined all aspects whether tax is being properly withheld by the banks on each transaction involving payments of profit on debt excluding cases covered by exemptions and whether the amount so deducted is being timely deposited into the government account. The committee recommended that the audit of WHT statements filed by the banks may be undertaken forthwith. A system audit of the major banks besides a sample audit of few of their branches may be taken up without any delay.
The report further said that the audit examined 232 listed public companies who paid cash dividend of Rs 145,506 million during 2007-08. The withholding tax @ 10 percent on dividend comes to Rs 14,550 million instead of Rs 5,422 million as reported by the FBR. This reflected that the collection was on the lower side. This difference would be much greater if all the resident companies are examined. The PAC directives for compliance in the cases of Rs 9.128 million were issued for discussion in the committee.
The committee recommended that the FBR should improve its system so as to regularly check proper withholding on dividend paid by the corporate sector through effective desk audit. All listed/unlisted companies in the respective RTOs should be examined for this purpose.
The audit also detected short recovery of tax on supply of raw cotton worth Rs 1282 million. The FBR had shown collection of tax of Rs 297 million from cotton ginners whereas tax revenue to be contributed by the cotton ginning sector on the basis of cotton bales worked out to Rs 1,579 million, resulting in short recovery of Rs 1,282 million. The cases of performance audit of withholding tax were clubbed with the direction that more interaction between the FBR and the concerned Director General Audit and Accounts is required to settle the issues at committee meetings.