ISLAMABAD: The Auditor General of Pakistan (AGP) has conveyed to the Federal Board of Revenue (FBR) that the withholding taxes are indirect taxes, but the FBR has wrongly named it as “direct tax” to show increased income tax collection.
The AGP report (2022-23), laid in the National Assembly on Thursday, said withholding taxes, which are indirect tax, are made part of the direct taxes collection. The collections of withholding taxes under different heads are indirect instead of direct, but the same are being collected/treated as direct taxes.
“Rather than increasing its capacity to capture tax evaders and strengthening audit mechanism to monitor self-assessment system, FBR has increasingly relied on the withholding tax regime, AGP added.
The tax collection under the withholding tax regime relies on the persons making payments by treating them as withholding agents. In other words, there is no active participation of the FBR regarding tax collection under this head. As the tax collection under this head is somewhat easier, therefore, withholding taxes form a major part of the total tax collection of the FBR, AGP report said.
