KARACHI: Federal Board of Revenue (FBR) has said that income tax from salary is an important source of revenue the world over. The real potential is much higher than the present collection, according to an official document.
Monitoring of withholding tax on salaries is a regular feature. Nevertheless, there is scope for further improvement in view of great potential for payment of considerable perquisites, generally undisclosed.
All payments made to the employees have tax implications. Strong and well coordinated communication with the employers is needed for promoting greater compliance in a supportive mode with a friendly interface between FBR and the stakeholders.
The Commissioner can advise to look into the following aspects through systems of large employers like Pakistan Steel, PIA, ICI , CAA& Banks etc :-
— Comprehensive review of the statements, filed by the Employers;
— Sector-wise salary surveys regarding trends of pay and allowances in different sectors;
— Salary structure analysis of major employers;
— Random selection of cases of senior executives of various corporate sectors including banking, oil and telecom, receiving huge salaries and perquisites, while devising monitoring plan of an organization;
— Payments in the following heads should be reviewed along with relevant documents for ensuring proper deduction:
— CBA agreement.
— Appointment letter / contract (job letter).
— Contribution to Provident Fund/Annuity.
— Re-imbursement of medical, petrol, and entertainment.
— Cars provided by the employers and expenditure on their acquisition and maintenance and Concessional loan facility provided by the company.
— House accommodation – furnished/unfurnished.
— Club bills / Hotel bills/Club subscriptions.
— Utility bills of employees paid by the employer.
— Free household items like Air-Conditioner, Fridge and furniture items provided.
— Concessional travelling/Leave Fair Assistance.
— Stock options offered and connected arrangements for payments and deduction of tax.
— Formula of deduction of tax and mechanism for recording thereof in the books of accounts and deposit of tax.
— Receipts of Capital nature which fall under the head “salary”.
— Compensation for redundancy or loss of employment and golden handshake payments.
— Scholarships/ tuition fee of children paid by the employer.
— Liabilities accounted for by the employer especially when new executives are hired, who owe liability to the ex-employer.
— Concessional mark-up/free loans provided, especially, in the cases of banks and financial institutions.
— Provision of services of Mali, Chowkidar, security system, driver and cook etc. or re-imbursement of pay of servants.
— Provision of free electricity, gas, telephone, travel and other products by the employers who deal in such business.
— Commission and rewards including sales targets achievements and other rewards.
— Services hired from abroad.
— Cash medical assistance/hospitalization paid to the employees.
— Any other allowance or perquisite provided by the employer paid in cash or in any other manner.
— Salary payments chargeable to Withholding Tax under section 149 of the Ordinance as shown in the Annual Statements should match with the amount of expenses under this head, charged to manufacturing and P&L Account/Audited Statement of Accounts. In case of any difference, the Withholding Tax Agent may be asked to reconcile and explain the reasons for not withholding such tax.
— Meal and entertainment claimed as business expenditure that may actually be personal, non-deductible.
— In closely held companies and family owned enterprises, unreasonable compensation to Directors and employees should be checked with reference to work done and contribution made.
— In the cases of Banks, actual deduction of tax from payment of salary to Branch staff and its deposit should be confirmed with reference to the separate challan for each such deposit. Payments of taxes deducted under various Sections through combined challan always create confusion. It should be ensured that each type of payment is duly supported by the relevant tax deposit challan. Misuse of one challan for various deposits is reported and should be adequately checked.
The Department should conduct System audit of Mega corporations / large companies in public and private sectors and should be replicated / shared in other cases on national basis.
It may be re-emphasized that non-cash perquisites are usually not declared in the statements. It is imperative to study terms and conditions of service provided in the service contracts/appointment letters.
Non-deduction of tax on such perquisites is a common practice observed in many cases for which cognizance, as per law, has to be taken.
