Karachi, October 6, 2023 – Pakistan has implemented a policy allowing for no deduction of withholding tax for citizens who are exempted from filing tax returns.
The move comes as part of efforts to streamline tax collection and reduce the tax burden on individuals not required to file returns.
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Sources within the Federal Board of Revenue (FBR) have confirmed that withholding tax provisions are now being applied uniformly to individuals engaging in financial transactions. Previously, there were instances where citizens who were not obligated to file tax returns were still subject to withholding tax, even though they did not appear on the Active Taxpayers List (ATL).
Under the Income Tax Ordinance, 2001, the withholding agent or the party responsible for tax collection or deduction must satisfy themselves that a person not listed in the active taxpayers’ list is genuinely exempt from filing a return of income. To do so, they must electronically submit a written notice to the Commissioner, including the following details:
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(a) Name, CNIC or NTN, and address of the individual not listed in the active taxpayers’ list.
(b) Nature and amount of the transaction on which tax is to be collected or deducted.
(c) Reasoning behind the belief that the individual was not required to file a return or statement.
Upon receiving such a notice, the Commissioner has a maximum of thirty days to either accept the contention or issue an order based on their assessment. If the Commissioner does not pass any order within this timeframe, it is deemed that the contention has been accepted, and approval is considered to have been granted.
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However, it is important to note that in cases where the withholding agent or tax collector has notified the Commissioner and the Commissioner has reasonable grounds to believe that the individual not appearing in the active taxpayers’ list was, in fact, required to file a return or statement, the Commissioner may issue a written order directing the withholding agent to proceed with tax deduction or collection.
This policy adjustment aims to ensure that tax collection is fair and aligned with the tax obligations of each citizen. By exempting those who are genuinely not required to file returns from withholding tax deductions, Pakistan is taking steps to simplify its tax system and promote compliance with tax regulations.
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