The Federal Board of Revenue on Thursday issued a national operational strategy on withholding tax to the field formations for recovery of WHT from documented sectors, following successful experience of raising tax demand of over Rs 12 billion from banking sector in a short span of 2-3 months.
In this connection, FBR Member Inland Revenue and Director General Intelligence and Investigation Inland Revenue Shahid Hussain Asad dispatched the national operational strategy on the WHT to the Chief Commissioners of Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) here on Thursday.
In the national operational strategy on withholding taxes (WHT) to the field formations, the FBR has given a blueprint to the field formations for exploring real tax potential of withholding tax regime. The plan is to prioritise the withholding agents for monitoring of withholding taxes and improve WHT collection during 2011-12. If the FBR has been able to recover over Rs 4.5 billion from the most documented sectors ie banks etc, the field formations would also focus on other documented withholding agents for improving withholding tax collection during current fiscal.
The results are expected similar to the banks audit experience from other documented sectors, improving overall revenue collection during 2011-2012. Thus, operational side would be given top priority at the level of LTUs and RTOs for recovery of WHT to the tune of billions.
According to the FBR, the amazing results of Banks Withholding Audit, (an exercise conceived, evolved, and launched by Directorate General Intelligence and Investigation Inland Revenue), provided the desired impetus for expanding this exercise. During the short span of 2/3 months and without creating any hue and cry, through the said exercise, the withholding segment of the most documented sector of our economy was focused, analysed and not only the suspected lost revenue of Rs 12 billion was detected, but an amount of Rs 4.25 billion was recovered from banks, and that too at the very critical stage of the preceding financial year. The said experience not only exposed our faulty monitoring mechanism of withholding taxes, it indicated the real tax potential of this segment as well and above all the do ability of any such initiative stands fully vindicated, FBR said.
The operational plan further disclosed that for the financial year ending June 30, 2011 out of total gross collection of Rs 626 billion, under the head Direct Taxes, 56.5 percent relates to the withholding tax regime. Even indirect taxes ie sales tax and federal excise duty (FED) reflect marginal collection made under the withholding mode. Though all the three aforementioned statutes contain very exhaustive legal provisions governing the said regime, yet ironically tax withholding regime gets minimum professional attention and resources (physical as well as human) of FBR field formations, FBR said.
Theoretically speaking, the first step in the desired direction was the formulation and publication of withholding brochures by Facilitation and Taxpayer Education Wing (FATE) Wing, FBR during 2003-2007 and the next landmark document was prepared by the Directorate General of Withholding during 2009.
On practical side no serious and concrete effort has been made so far to fathom the real tax potential of this segment. Secondly, efforts have not been made to face the challenges posed by the existing snags in the regime. Thirdly, the field formations have yet not formulated an appropriate strategy to tap the aforesaid potential, and to find out the basic parameters, which can help in evolving a comprehensive and foolproof withholding tax regime on ground.