Questions are being raised regarding the efficiency of tax administration as the Federal Board of Revenue (FBR) has reportedly begun issuing notices under Section 176(1) of the Income Tax Ordinance, 2001, to salaried individuals. These notices are requesting taxpayers to provide evidence of the income tax deducted from their salaries by their employers, despite the fact that this withholding tax data is already available within FBR system.
This practice has led to concerns among taxpayers and tax professionals about redundant procedures and the potential wastage of both FBR resources and taxpayer time and money.
The Standard Withholding Mechanism
Under income tax law, employers are legally required to deduct income tax at source from their employees’ salaries based on applicable rates. The amounts withheld are then deposited with the FBR, and employers are obligated to file periodic withholding tax statements. These statements detail the tax deducted against each employee’s National Tax Number (NTN) or Computerized National Identity Card (CNIC), providing the FBR with a record of tax collected on salaried income directly from the source.
Notices Under Section 176(1)
Section 176(1) of the Income Tax Ordinance, 2001, grants the Commissioner Inland Revenue the authority to require any person to furnish information or documents relevant to any tax matter. While a standard provision for seeking information, its application in demanding proof of salary tax deduction directly from the employee, despite the corresponding employer data being available, is the point of contention. Taxpayers are reportedly being asked to submit documents such as salary slips showing deductions or certificates issued by their employers as proof of compliance.
Concerns Over Redundancy and Wasted Resources
Critics argue that this exercise is redundant because the FBR already possesses the primary source of this information – the withholding statements filed electronically by employers. Demanding the same proof from the individual employee places an unnecessary compliance burden on salaried taxpayers, who have limited control over the employer’s deduction and reporting process once tax is withheld from their pay.
Furthermore, this practice is seen as a potential waste of the FBR’s own resources. It involves administrative costs for generating and dispatching notices, and subsequent effort to process and review the documents submitted by taxpayers, information that should, in theory, already be reconcilable within the FBR’s own system using the employer-reported data. Taxpayers and experts suggest that public funds used for the FBR’s operations could be utilized more efficiently by improving internal data management and cross-verification processes.
Call for Improved Data Utilisation
The situation highlights a perceived need for the FBR to enhance its use of the vast amounts of digital data it collects. Leveraging the existing electronic withholding data submitted by employers to automatically verify the tax deducted from salaried individuals could potentially eliminate the need for such widespread notices under Section 176(1) for this specific purpose. Streamlining these processes would reduce compliance costs for taxpayers and improve the overall efficiency and perception of the tax administration system.
