Islamabad – The Federal Board of Revenue (FBR) has unearthed a colossal tax fraud amounting to Rs 78 billion in the collection and deposit of withholding tax on salary income.
This revelation underscores significant gaps in tax compliance and enforcement, highlighting systemic loopholes that have been exploited for years.
Well-informed sources within the FBR confirmed on Thursday that tax authorities detected the massive evasion through a meticulous investigation of tax returns filed for the tax year 2019 to 2024.
“A forensic examination of income tax returns revealed glaring discrepancies in withholding tax deductions claimed by salaried individuals under the head of salary and actually verified from CPRs” an official disclosed on the condition of anonymity. “The investigation initially focused on individuals in the highest salary tax slab, earning over Rs 1.5 million annually.”
According to FBR sources, unscrupulous individuals exploited the tax authority’s leniency toward salaried taxpayers, claiming inflated withholding tax credits. Under Section 149 of the Income Tax Ordinance, 2001, employers are mandated to deduct taxes at the time of salary disbursement. Whereas, employees also need to declare their income on the basis of deducted withholding tax on salary as well as on the other source of income.
In response to the staggering Rs. 78 billion tax gap, the FBR issued notices under Section 162 of the Income Tax Ordinance, 2001 to recover unpaid taxes. “One prominent business entity alone remitted over Rs 200 million in response to these notices,” an official disclosed.
This year, the FBR leveraged cutting-edge technology to reconcile withholding tax deductions, which exposed vast inconsistencies. “In the past, FBR merely accepted employers’ withholding tax deductions and employees’ declarations without thorough cross-verification, leading to the accumulation of unjustified tax refunds,” the official admitted. The situation had grown so severe that in 2021, tax refund issuance was effectively halted to curb losses.
Recognizing the scale of this evasion, the FBR is now planning an expanded crackdown, intensifying monitoring of withholding taxes and conducting rigorous audits of declared income tax liabilities.
To mitigate future revenue leakages, FBR officials stress the urgency of implementing the Synchronized Withholding Administration and Payment System (SWAPS), a streamlined mechanism designed to enhance tax collection accuracy and prevent exploitation of the withholding tax system. “Strict enforcement of SWAPS will be instrumental in ensuring greater transparency and compliance,” the source emphasized.
This landmark revelation by the FBR signals a pivotal shift towards stringent tax oversight, reaffirming the government’s commitment to closing tax loopholes and enhancing revenue mobilization for national development.