Federal Board of Revenue (FBR) has certain limitations in their taxing mechanism which creates allowance for tax evasion by several companies in the country. One such limitation was exposed in a meeting of the Standing Senate Committee of Finance when it was revealed that FBR has been unable to collect Withholding Tax (WHT) from country’s top telecommunication companies for the last 10 years.
FBR said that it does not have the technical capacity to analyze data from telecommunication companies on transactional basis, and thus have no option but to trust these companies on the data provided by them.
Four telecom companies had been collecting WHT of Rs. 4 billion per month from their customers and evaded filing it with the FBR, said Shakil Kasana, Commissioner of the telecommunication sector.
For now, FBR had only been receiving the tax filed by companies themselves and no proper audit of the telecommunication companies was being done. However, the revenue board has now started auditing country’s leading telecom company, Telenor Pakistan, and expects to complete it within the next four months.
Telenor received Rs. 98.1 million in the month of July as WHT by its customers, but the taxable amount remained unfiled with the revenue board because their system was incapable of dealing with such big data.
The problem has posed concerns over the capability of FBR that has been targeting individuals and companies for evading smaller amounts of taxable income, while all the big fish in the industry remained uncaught by the revenue board, resulting in humongous losses to the national treasury. Senator Mohsin Aziz also said that FBR is only going after small taxpayers and industrialists, leaving out the top resources to continue to evade taxes.
Telecom sector deducts an upfront WHT on transactions and pre-paid connections under the income tax ordinance. Apart from telecom companies, cigarette manufacturers have also evaded Rs. 60 billion taxes in the past one year.
Senate Committee has advised FBR to outsource the audit of telecommunication companies if they don’t have the expertise and required resources to conduct it effectively. The committee has given them two weeks to come up with updated information about the telecommunication companies.