ISLAMABAD (February 13 2008): To increase withholding tax collection, the Federal Board of Revenue (FBR) has approached the State Bank of Pakistan (SBP) to furnish data on cash withdrawals from banks, payments made on prize bonds and total profit on debt paid by the banks during 2007-08.
THE BOARD IS READY TO AMEND THE INCOME TAX ORDINANCE 2001 TO REMOVE LEGAL FLAWS HINDERING SMOOTH INCOME TAX COLLECTION FROM BANKS: Sources told the reporter on Tuesday that the FBR is ready to amend the Income Tax Ordinance 2001 in the next year's budget to remove legal flaws hindering smooth income tax collection from banks, being withholding agents.
They said that FBR has also asked the SBP and Pakistan Banks Association (PBA) to access the banking system to ascertain whether the banks have duly withheld tax on profit on debt.
According to them, withholding tax is being deducted on account of cash withdrawals from banks under section 231A of the Income Tax Ordinance 2001. The board has taken up the issue with the SBP and the PBA to ascertain the actual amount withdrawn, tax due to be withheld on such withdrawals and tax actually withheld.
This would help the department to detect discrepancy in tax withheld and actual cash withdrawn from the banks. During this exercise, the FBR would address any legal lacuna and amend the income tax law to further streamline the system.
Sources said that withholding tax is deducted on account of prize bonds and other prizes etc under section 156 of the Income Tax Ordinance 2001. The FBR data revealed that there was an improvement of 25 percent in withholding tax collection from prize bonds during July-December (2007-08) as compared to the same period of last fiscal year.
The FBR has taken up the issue with the SBP and other organisations to ascertain their actual potential and to fill the gap, if any, in the tax due to be withheld and tax actually withheld on prize bonds.
Sources said that withholding taxes under various sub-sections of section 151 on account of profit on debt showed an improvement of 22 percent in the first six months of 2007-08 as compared to the same period last fiscal year.
The FBR wanted to look into the total profit on debt paid by the banks, tax due thereon, tax actually deducted and expenses claimed on account of profit on debt. However, the banks did not provide payee-wise statements of withholding tax on account of profit on debt due to secrecy provisions of the Banking Companies Ordinance. In this connection, the FBR is examining the issue to find some way out for obtaining this statement from the banks.
Meanwhile, the issue has been taken up with the State Bank of Pakistan and the Banks' Association to ascertain whether or not due tax is withheld on account of profit on debt.