Audit finds 472 withholding agents failed to deduct tax on rental payments across 17 FBR field offices
ISLAMABAD: The Federal Board of Revenue (FBR) has failed to recover more than Rs1.02 billion in withholding tax on income from property after hundreds of withholding agents did not deduct tax on rental payments, according to the latest audit report of the Auditor General of Pakistan (AGP).
The audit, covering fiscal years 2022-23 and 2023-24, found that 472 withholding agents across 17 FBR field offices failed to deduct withholding tax while making rent payments to owners of immovable properties, resulting in significant revenue losses.
Audit Highlights Rs1.02 Billion Tax Shortfall
According to the AGP report, Section 155, read with Section 161 of the Income Tax Ordinance, 2001, requires prescribed persons to deduct withholding tax at the applicable rates when making rental payments. Where tax is not deducted or deposited, the Commissioner Inland Revenue is empowered to recover the unpaid amount through legal proceedings.
The audit estimated that the failure to comply with these provisions led to the non-recovery of Rs1.017 billion in withholding tax. The audit observations were communicated to the FBR between February and November 2024.
Limited Recovery Despite Legal Proceedings
In its response, the FBR informed auditors that only Rs1.02 million had been recovered and verified, while Rs0.06 million had been charged but was still awaiting recovery.
The tax authority added that legal proceedings involving Rs1.016 billion had been initiated under the Income Tax Ordinance, 2001, but the cases had not yet been finalised.
DAC Directs FBR to Expedite Recovery
The Departmental Accounts Committee (DAC), during meetings held between July 2024 and January 2025, directed the FBR to recover the admitted amount, complete pending legal proceedings and submit compliance reports to both the Audit authorities and the FBR.
However, the AGP report noted that no significant progress had been communicated before the audit was finalised.
AGP Calls for Stronger Enforcement
The Auditor General recommended that the FBR accelerate the recovery of outstanding tax liabilities, conclude pending legal proceedings and strengthen monitoring of withholding agents to ensure the proper deduction and timely deposit of withholding tax.
The report also urged the tax authority to reinforce enforcement of the withholding tax regime through the Commissioner Inland Revenue (Withholding) to minimise future revenue leakages and improve tax compliance.