Withholding Taxes in FBR
What is tax withholding?
Withholding tax is an advance payment of tax deducted at the time of economic activities specified under certain sections of the Income Tax Ordinance, 2001 and Sales Tax Act, 1990. The rate of tax deduction varies across these sections. The treatment also differs, with the amount of deduction treated as final discharge for some sections and adjustable against the final tax liability of a taxpayer for others.
Responsibility for withholding tax deduction
The responsibility for deduction of withholding tax at the rates specified for a section lies with the withholding tax agents prescribed for that section. Sections 165 and 165C of the Income Tax Ordinance, 2001 require the agents to file withholding statements to their respective Commissioners at the period prescribed for the purpose. Non-filing of statements may attract penalty proceedings under section 182 of the Ordinance, besides rendering a person "Inactive" for sales tax purposes under the provisions of sub-section (1A) of section 2 of the Sales Tax Act, 1990.
Liability for correct deduction and payment
Under sections 161 and 162 of the Income Tax Ordinance, 2001, withholding agents and withholdee taxpayers respectively are personally liable for payment of tax if the due amount of tax is not deducted or if tax is deducted but not paid to the credit of the Federal Government. Under section 2, sub-section (37), clause (i) of the Sales Tax Act, 1990, suppression and nonpayment of withholding tax under the Act beyond a period of three months from the due date of payment comes under the definition of tax fraud.
FBR's systems for management of withholding tax data
FBR has developed digital systems for collection and maintenance of data of withholding taxes. For Inland Revenue Officers, the main software for this purpose is the Withholding Real-time Information Tracker, WRIT, which provides updated reports of section-wise collection fetched from the State Bank of Pakistan. Information of tax deduction under most of the sections is also available to the taxpayers who may view and retrieve it either from the Maloomat portal of FBR or by navigating into their IRIS account and opening the Tax Payments tab under the MIS link.
FBR is also currently working on the implementation of the Synchronized Withholding and Payment System, SWAPS, which requires withholding tax agents who are designated as SWAPS agents to integrate their systems with FBR as per provisions of section 164A of the Ordinance. Once operational, SWAPS will be linked with the instant payment gateway of the State Bank of Pakistan, RAAST, and route any withholding tax payment to FBR at the time of an electronic transaction that is subject to such payment.
