Remuneration for withholding agents mulled

KARACHI: Government is mulling a remuneration system for withholding tax agents to encourage them to increase collection, as it faces a daunting challenge to achieve the revenue target of Rs4.435 trillion for the current fiscal year of 2018/19, sources said on Saturday.

The sources in the finance ministry said the present government realises the ground realities and it is considering compensation to withholding agents as well as reduction in withholding taxes, which are different for filers and non-filers.

They said the government is considering payment as services to withholding agents in order to enhance collection and improve economic documentation.

Withholding income tax collection accounts for 68 percent of total direct taxes, and are mostly collected by withholding agents.

The Federal Board of Revenue (FBR) collected Rs1.536 trillion as direct taxes during the fiscal year of 2017/18 and out of which the collection of withholding tax amounted to Rs1.047 trillion.

The government imposed withholding tax on cash withdrawal through Finance Act 2005 in order to discourage cash economy. It further imposed withholding tax on non-cash transactions that was aimed to increase the cost of transactions made by non-filers of income tax returns.

The sources said the government is considering payment of small percentage in the form of tax credit to withholding agents, excluding banks. The FBR would evolve a strategy regarding collection charges to withholding agents.

Withholding agents, under the law, are responsible to collect withholding tax on behalf of the FBR and deposit the same to exchequer.

Under Section 165 of Income Tax Ordinance, 2001, some individuals are required to collect withholding tax and maintain record of deduction on behalf of the FBR.

In addition to withholding tax collection, agents are required to maintain records, including name, computerised national identity card and address of each individual from whom the tax is collected. Withholding tax agents are required to file monthly statement of collected tax along with other information. If a withholding agent fails to timely submit withholding statement then he will be liable to pay fine and penalty.

Tax Reform Commission (TRC) said the burden on compliant taxpayer for withholding of taxes is enormous and they are not compensated.

“FBR should simplify the tax withholding regime and compensate the withholding agents at least at 0.1 percent of the tax withheld,” TRC proposed in a report.

Currently, a large number of withholding tax provisions exist and withholding tax agents are required to comply with the law.

The TRC said the FBR reduced its cost of collection by shifting its responsibility to withholding agents/businessmen and that too without any compensation. “Adding insult to injury is they are penalised for insignificant lapses,” the commission added.