FTO Targets Banks: Calls for Tighter Withholding Tax Oversight in Pakistan

Pakistan’s Federal Tax Ombudsman (FTO) is cracking down on what it sees as flaws in how banks handle withholding taxes. The FTO has issued recommendations urging the Federal Board of Revenue (FBR) to tighten regulations and implement a more efficient tax collection system from banks.

The Problem: Inefficient Withholding Tax Collection by Banks

  • FTO Investigation: Following studies by tax authorities revealing significant issues, the FTO launched an investigation into banks’ withholding tax practices.
  • Concerns Raised: The FTO identified problems such as a lengthy and complex collection process, lack of transparency, and potential for tax evasion.

FTO’s Recommendations for Improvement:

  • Strengthened Regulatory Oversight: The FTO urges the FBR to review and improve the regulatory and monitoring framework for bank withholding taxes.
  • Faster Collection System: A more robust and quicker tax collection mechanism from banks is needed to ensure timely revenue collection for the government.
  • Legislative Changes: The FTO recommends legislative amendments to empower the FBR with greater access to information and control. This could involve:
    • Enabling provisions for a dedicated tax collection portal for banks.
    • Requiring banks to maintain specific general ledger accounts for withholding taxes, accessible by the FBR for monitoring purposes.

Benefits of Improved Withholding Tax Practices:

  • Enhanced Revenue Collection: A more efficient system would ensure the government receives all tax dues collected by banks in a timely manner.
  • Reduced Tax Evasion Risk: Stronger monitoring would help identify and prevent potential tax evasion through the banking system.

Current Status and Future Developments:

  • The FBR is currently considering the FTO’s recommendations.
  • No official announcement has been made on any concrete actions planned by the FBR.
  • It’s important to stay informed for updates on any legislative changes or implemented reforms regarding bank withholding taxes in Pakistan.

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