Audit urges FBR to expedite recovery proceedings against 1,779 taxpayers over uncollected advance income tax
ISLAMABAD: Pakistan’s tax authorities have been directed to recover more than Rs6.52 billion in unpaid advance income tax after an audit uncovered widespread non-compliance by manufacturers, importers, distributors and wholesalers during fiscal years 2022-23 and 2023-24.
According to audit findings, 1,779 taxpayers across 16 field formations of the Federal Board of Revenue (FBR) failed to collect advance tax from retailers, wholesalers and distributors at the time of sale, resulting in a revenue shortfall of Rs6.521 billion.
Audit Flags Major Tax Recovery Gap
The audit report noted that Sections 236G and 236H of the Income Tax Ordinance, 2001 require manufacturers, commercial importers, distributors, dealers and wholesalers to collect advance income tax at prescribed rates while making sales to specified persons.
Under Section 161 of the ordinance, any person responsible for collecting tax becomes personally liable if the tax is not collected or deposited with the government.
Despite these legal provisions, auditors observed that the FBR did not initiate timely recovery proceedings against defaulters, leading to the accumulation of substantial unpaid tax liabilities.
The irregularities were identified between February and November 2024 during an audit of tax years relating to fiscal years 2022-23 and 2023-24.
Only Fraction of Tax Recovered
In its response, the FBR informed auditors that only Rs0.52 million had been charged and recovered. The department further stated that Rs3.42 million had been charged but remained unrecovered.
According to the report, legal proceedings involving Rs6.510 billion were underway but had not yet been finalised, while cases worth Rs6.60 million remained pending before courts.
The audit highlighted that the overwhelming majority of the disputed amount remains outstanding.
DAC Orders Swift Recovery Action
The Departmental Accounts Committee (DAC), during meetings held between July 2024 and January 2025, directed the FBR to accelerate recovery efforts and complete pending legal proceedings.
The committee also instructed tax officials to pursue sub judice cases through appropriate legal channels and submit compliance reports to both audit authorities and the FBR.
However, auditors noted that no significant progress had been reported before the finalisation of the audit report.
Call for Stronger Enforcement
The audit recommended that the FBR immediately recover admitted liabilities, expedite legal proceedings and strengthen enforcement mechanisms to prevent future revenue leakages.
It also suggested monitoring compliance through a risk-based desk audit system targeting retailers, distributors and wholesalers.
Tax experts say advance tax collected under Sections 236G and 236H remains an important component of Pakistan’s withholding tax framework and a significant source of government revenue.
The recovery of more than Rs6.52 billion in outstanding taxes could support revenue collection efforts and help strengthen fiscal stability as Pakistan seeks to broaden its tax base and improve compliance across the supply chain.
