LAHORE: The Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue (FBR) to conduct a detailed withholding tax (WHT) audit of commercial banks to address potential revenue leakage.
In a recent order issued by the FTO office, the FBR has been advised to replicate the audit exercise conducted by the Large Taxpayer Office (LTO) Lahore across other field formations that oversee commercial banks in Pakistan. This initiative aims to identify and rectify gaps within the banks’ withholding tax systems.
The FTO emphasized the importance of a thorough analysis and review of the current withholding tax monitoring mechanisms. It recommended that the FBR suggest corrective measures to maximize revenue generation. One significant recommendation includes providing field formations with access to banks’ software for real-time monitoring and corrective actions. Implementing this recommendation might require amendments to existing laws and regulations.
The FTO highlighted the critical need for improvements in the software used by banks for monitoring purposes. The department should have access to this software and conduct periodic detailed audits to detect and correct any errors or deficiencies. Enhancing the banks’ software would significantly streamline the monitoring mechanisms, making the process more efficient and effective.
Additionally, the FTO suggested that the FBR issue clarifications for common errors or mistakes detected during withholding audits. This would benefit all taxpayers and help ensure compliance within 90 days.
Contrary to the department’s assertion, the FTO pointed out that the current strategy for withholding taxes is not sufficiently robust. While conducting audits under section 161 of the Income Tax Ordinance, 2001, for all banks each year might be beneficial in the short term, it is not a sustainable long-term solution. The FTO argued that detailed audits, by their nature, are limited to a small number of cases and serve primarily as a deterrent rather than a significant revenue generator.
Given the vast number of transactions and extensive records, it is impractical for officers to scrutinize each transaction due to time constraints and human limitations. Therefore, the FTO proposed developing an advanced automated system to minimize user errors and enable tax authorities to efficiently and promptly pinpoint discrepancies. This proposed automated system aligns with best international practices and is essential for ensuring a robust and effective tax compliance framework. The FTO’s recommendations underscore the need for significant advancements in the monitoring and auditing processes of withholding taxes to safeguard revenue and enhance fiscal discipline in Pakistan’s banking sector
