Collection of WHT on profit: Saving Centers monitoring initiated by DGI&I IR
SOHAIL SARFRAZ
ISLAMABAD: With full support of the Central Directorate of National Savings (CDNS), Directorate General of Intelligence and Investigation Inland Revenue (IR) Federal Board of Revenue has started monitoring of the National Saving Centers (NSCs) on national level to check/verify deduction and collection of withholding taxes on profit earned through investment made in different schemes.
Sources told Business Recorder on Tuesday that the directorate of intelligence IR has started the exercise across the country on explicit instructions of FBR Chairman Mumtaz Haider Rizvi. The directorate had written a letter to the CDNS for monitoring of the withholding tax on national saving schemes and saving accounts etc. It is also being examined whether withholding tax provisions have been complied by the NSCs. The directorate of intelligence IR had assured the CDNS that the tax officials have no intention to go into the details of the individual investors, but would only verify compliance of the withholding tax provisions by the NSCs. The exercise is being carried out to ensure that investors should not face any problem but NSCs start compliance of the relevant withholding tax provisions of the Income Tax Ordinance 2001. The CDNS has not only appointed a senior official as focal person, but also extended full cooperation to the agency for completion of the exercise. At the same time, the education of the officers of the NSCs is also an important part of the exercise to ensure proper deduction of tax as per applicable provisions of the law in future, sources added.
When contacted, Zafar M Sheikh, Director General National Saving Organization said we have conveyed to our field staff to fully cooperate with the teams of the FBR for monitoring of withholding taxes. As a national organization, it is our responsibility to assist the FBR’s teams for monitoring of withholding taxes.
To a query, he said that so far we are only deducting withholding tax on different schemes as per applicable laws and trying to place an effective system to deduct withholding tax on cash withdrawal from special saving accounts at the NSCs, he added.
Sources said that the directorate of intelligence IR is focusing on the withholding tax deducted during 2011-2012 on various saving schemes. The agency has detected major discrepancies in withholding tax deductions made at the NSCs located at Hyderabad, Lahore Quetta, Gujranwala, Rawalpindi and Sialkot. Beside excessive claims of basic exemptions, the directorate has found that the NSCs are not deducting withholding tax on cash withdrawals from saving accounts and special saving accounts under section 231A and 231AA of the Ordinance 2001. Under income tax law, a banking company is required to deduct withholding tax on cash withdrawals, transactions and transfer of money as per provisions of section 231A and 231AA of the Ordinance 2001. Banking company has been clearly defined in the Income Tax Ordinance 2001. The FBR will take up the matter with the CDNS to ensure deduction of withholding tax on cash withdrawals from the saving accounts maintained by the NSCs.
The agency has been successfully conducting the exercise at all the NSCs with the help of the CDNS, sources said.
Sources said that during the last financial year (2010-11), with the approval of Board-in-Council, Directorate General I&I-IR had launched its first detection venture under the title “Bank Withholding Audit,” wherein joining hands with all three Large Taxpayer Units (LTUs), a well organized audit campaign was conducted covering almost all commercial banks in Pakistan. Results of the said exercise were so encouraging (an amount of Rs 4.25 billion was recovered within two months time), that Chairman FBR has assigned a similar and equally important assignment to this Directorate General, which relates to detection of tax evasion in the realm of NSCs at the withholding stage.
Being I&I arm of IR Wing, this Directorate General has taken no time in conceptualizing, developing and launching the desired exercise which in the face of current revenue crunch can provide the much needed relief to FBR. Salient features of this operational venture are shared with the stakeholders hereunder:
According to directorate of intelligence IR, the FBR decision to look into the said segment of our financial sector is not based on some blind guess or any random check, rather consecutive instances of glaring tax evasion necessitated the said enforcement action. Following facts have mainly triggered the instant initiative:
Firstly, during November, 2009 Directorate General Withholding Taxes had furnished a detailed report to Chairman FBR wherein certain revenue gaps were identified in NSCs withholding regime.
Secondly, in May 2011, while processing broadening the tax-base (BTB) cases one of the BTB officers at Lahore came across a tax payer (NTN-0011859) who admitted non-deduction of withholding tax on encashment of Defence Saving Certificates (DSCs) and along with the return he deposited an amount of Rs 1.035 million. It was an eye opener.
Sources said that very recently RTO Lahore has conducted withholding audit of NSCs at Lahore and as the result of this exercise an amount of Rs 138 million was identified as non-deduction/short deduction.
Explaining the grey areas in NSCs withholding regime, sources said that the withholding regime in NSCs is quite different from rest of the financial institutions, especially Banks & DFIs.