ISLAMABAD: The Federal Board of Revenue (FBR) has failed to recover more than Rs1.02 billion in withholding tax on rental income after hundreds of withholding agents did not deduct tax from property rental payments, according to the latest audit report issued by the Auditor General of Pakistan (AGP).
The audit, covering the financial years 2022-23 and 2023-24, found that 472 withholding agents operating under 17 FBR field formations failed to deduct withholding tax while making rental payments to owners of immovable properties, resulting in a tax shortfall of over Rs1.017 billion.
According to the AGP, Section 155 read with Section 161 of the Income Tax Ordinance, 2001, requires prescribed persons to deduct withholding tax at the applicable rates when making rent payments. If the tax is not deducted or deposited, the Commissioner Inland Revenue is legally empowered to recover the unpaid amount.
The audit report stated that the observations were communicated to the FBR between February and November 2024, highlighting widespread non-compliance with withholding tax provisions.
In its response, the FBR informed auditors that it had recovered only Rs1.02 million, while an additional Rs0.06 million had been charged but was still pending recovery. The tax authority further stated that legal proceedings involving approximately Rs1.016 billion had been initiated under the Income Tax Ordinance, 2001, but the cases had yet to reach a conclusion.
The Departmental Accounts Committee (DAC), during meetings held between July 2024 and January 2025, directed the FBR to recover the admitted tax amount, expedite pending legal proceedings, and submit compliance reports to both the Audit authorities and the FBR.
However, the AGP observed that no significant progress had been reported before the audit was finalized.
The audit report recommended that the FBR accelerate recovery efforts, conclude pending legal proceedings, and strengthen oversight of withholding agents to ensure proper deduction and timely deposit of taxes on rental income.
The Auditor General also urged the FBR to improve enforcement of the withholding tax regime through the Commissioner Inland Revenue (Withholding), warning that stronger compliance measures are necessary to prevent future revenue leakages and enhance tax collection from property income.
