Islamabad, Pakistan – The Auditor General of Pakistan (AGP) has identified a significant discrepancy in the Federal Board of Revenue’s (FBR) tax collection practices, highlighting that withholding taxes are being incorrectly classified as direct taxes.
The latest AGP audit report for the fiscal year 2023-24 revealed that withholding taxes, which are indirect in nature, are being collected and reported as direct taxes by the FBR. This misclassification has implications for the overall tax revenue picture and the accuracy of tax data.
Withholding taxes, collected through a “at source deduction” mechanism, constitute a substantial portion of the FBR’s total tax revenue. In the fiscal year 2022-23, withholding taxes accounted for Rs1,874 billion out of the total direct tax collection of Rs3,271 billion, representing 57% of the total direct taxes. Business Recorded
The AGP report observed that several components of withholding taxes, including those on contractual receipts, exports, bank interest, and property purchases, fall under the minimum tax or final tax regime, which are indirect taxes. Despite this, the FBR has been collecting and reporting these taxes as direct taxes.
Furthermore, the report noted that adjustments for withholding taxes on telephone bills and property purchases were not being claimed by non-filers, resulting in potential over-collection of taxes.
The AGP’s findings underscore the importance of accurate tax classification and reporting. The FBR should take immediate steps to rectify this discrepancy and ensure that withholding taxes are correctly categorized and reported as indirect taxes.
