Mohsin Siddiqui (Chief Reporter)
The Federal Tax Ombudsman (FTO) has issued a directive to the Member Operations of the Federal Board of Revenue (FBR) to take immediate action to recover short deducted withholding tax from the National Highways Authority (NHA), a state-owned organization. This directive follows a significant oversight where the required amount was not recovered due to negligence by certain field formations within the FBR.
In a landmark order, Dr. Asif Mahmood Jah has instructed the FBR and the Corporate Tax Office (CTO) in Islamabad to conduct a comprehensive withholding audit of the NHA. This audit aims to identify and recover the short-paid tax amount, ensuring compliance with tax laws and safeguarding the public exchequer.
A public interest request was initially filed by Waheed Shahzad Butt, an advocate, highlighting the discriminatory application of withholding taxes under Section 236A by the NHA. Following an investigation, the FTO found that the charge of withholding tax (WHT) on the auction of toll collection rights necessitated a thorough withholding audit. The investigation revealed maladministration on the part of the FBR and the CTO, Islamabad.
As per the FTO’s directives, the concerned Chief Commissioners Inland Revenue (CCIRs) must ensure a comprehensive withholding audit of the NHA. This audit is crucial to identify any short-paid amounts and recover them in accordance with the law. The goal is to rectify the negligence and ensure that proper procedures are followed to prevent future discrepancies.
The complainant, Waheed Shahzad Butt, pointed out that government functionaries, including the CTO, Islamabad, and the NHA, were violating provisions of Sections 236A, 160, 161, 163, and 205, read with Rule 43 of the Income Tax Rules, 2002. These violations pertained to the improper deduction of withholding taxes at prescribed rates, thereby depriving the public exchequer of significant revenue.
The complainant further alleged that a substantial amount of Rs27,100,455,965, which should have been deducted under Section 236A, went unchecked by the CTO Islamabad. This unchecked amount indicated serious incompetency and inefficiency within the WHT monitoring wing of the CTO Islamabad. The complainant requested that the FBR chairman initiate strict legal proceedings against the CTO, Islamabad, and the NHA for their blatant violation of tax provisions. Additionally, the complainant urged the issuance of necessary and lawful Standard Operating Procedures (SOPs) and instructions to the FBR field formations to prevent the misuse of authority by WHT agents.
In response, the FTO’s letter addressed the issue, stating, “I am directed to enclose herewith a copy of the email dated 20.06.2024 received from Waheed Shahzad Butt, Advocate, inviting attention to the deduction of withholding tax by the National Highway Authority at the rate of 5% while the Punjab Highway Department is deducting withholding tax at the rate of 10%.”
The letter further highlighted that NHA had been requested to pay the differential short-paid amount of withholding tax of 5% on the sale proceeds through auction under Section 236A of the Income Tax Ordinance, 2001. This amount, along with an additional surcharge at the rate of 18% as per Section 205, is recoverable. The FTO’s office requested that the FBR take action according to the law and keep both the complainant and the FTO Secretariat informed of the proceedings.
This directive from the FTO underscores the importance of adherence to tax laws and regulations by state-owned entities and government functionaries. Ensuring that withholding taxes are correctly deducted and paid is crucial for maintaining the integrity of the public exchequer and preventing revenue loss. The comprehensive audit of the NHA will serve as a corrective measure and a deterrent against future negligence and maladministration within the FBR’s field formations.
