Five percent WHT on air tickets: FBR to verify payment by airlines

The Federal Board of Revenue (FBR) has decided to verify payments of 5 percent withholding tax deductions on domestic air tickets to check whether the deducted amount has been deposited in the national exchequer for 2010-11.
Sources told Business Recorder here on Friday that the FBR has launched a cross verification exercise to check the payments of withholding tax on purchase of domestic air tickets. The Board would also launch a recovery drive against airline ticketing agents, who have deducted 5 percent withholding tax on purchase of air tickets, but failed to deposit the same in the national exchequer.
According to sources, the FBR has directed the Regional Tax Offices (RTOs) to check whether the amount of 5 percent withholding tax on purchase of air tickets has been deducted and deposited in the national kitty by the airlines. Sources said that the last Board-in-Council meeting of the FBR, chaired by FBR Chairman Salman Siddique, discussed threadbare the revenue potential of three domestic airlines for the purpose of collection of withholding tax on air tickets.
The performance of all three domestic airlines was also discussed in the Board-in-Council meeting to determine whether 5 percent withholding has been collected and subsequently deposited on the purchase of tickets. It was also discussed in detail whether the domestic airlines have dully paid the deducted amount of withholding tax on purchase of air tickets.
At the time of announcement of budget (2010-11), the FBR had estimated to collect nearly Rs 3 billion under this head, but the collection is very low against the projected amount. All the Chief Commissioners of the Large Taxpayer Units and Regional Tax Offices would submit their reports on the withholding tax deductions under various heads in the upcoming Chief Commissioner conference to be held on March 8, 2011.
Through Finance Act 2010, a new section, 236B, has been inserted in the Income Tax Ordinance 2001. The new enactment provides for charge of adjustable withholding income tax on purchase of tickets for inland air travel. This tax would be collected @ 5 percent on gross amount of air ticket for inland travel along with the payment for the air ticket. This advance tax shall be adjustable against the overall tax liability of the purchaser of such air ticket.
This tax shall not be charged on purchase of air ticket by the Federal/Provincial Governments and by a person who produces a certificate from the relevant Commissioner Inland Revenue that income of such person during the tax year is exempt. Tax deducted under this section shall be paid to the relevant Commissioner Inland Revenue as required under the law.
Tax deducted under this section shall be allowed to be adjusted against the tax liability of the person whom such ticket for inland air travel is issued. However, in cases where payment is made by the employer/parents of the dependents travellers, such adjustment can be claimed by the employer/parents.
When contacted, a Karachi-based travel agent told this scribe that all travel agents duly deduct the 5 percent withholding tax on air travel and deposit the same with the concerned domestic airline. Under the arrangement agreed between the travel agents and airlines, the amount has been deposited with the airlines, which are responsible to deposit the amount in the national exchequer. The issue basically lies between the FBR and the airline for the recovery of the deposited amount, he added.
The concerned section 236B of the Income Tax Ordinance 2001 says [236B. Advance tax on purchase of air ticket]. There shall be collected advance tax at the rate specified in Division IX of Part IV of the First Schedule, on the purchase of gross amount of domestic air ticket. The person preparing air ticket shall charge advance tax under subsection (1) in the manner air ticket charges are charged.