When withholding tax is not collected or deducted, a common question arises: Who ultimately pays the unpaid tax—the withholding agent or the person receiving the payment? The Federal Board of Revenue (FBR) has clarified this under Section 162 of the Income Tax Ordinance, 2001 for tax year 2026.
What is Section 162?
Section 162 explains how unpaid withholding tax can be recovered and from whom the FBR may demand payment. It specifically addresses situations where a withholding agent fails in their duty to collect or deduct tax from payments.
Key Points of Section 162
1. Recovery from the Person Responsible
o If a withholding agent fails to collect or deduct tax, the Commissioner of Income Tax can issue an order to recover the unpaid tax.
o Recovery can be made from the person from whom the tax should have been collected or the person who received the payment.
2. Withholding Agent’s Liability Remains
o Even if the FBR recovers the tax from the taxpayer, the withholding agent remains liable for:
Default surcharge
Disallowance of related expenses
Other legal actions under the Ordinance
3. Purpose of Section 162
o Ensures tax collection compliance
o Prevents withholding agents from avoiding responsibility
o Provides FBR the legal authority to recover unpaid taxes efficiently
Tips for Withholding Agents
💡 Always Deduct Tax: Avoid liability by collecting or deducting withholding tax on time.
💡 Maintain Payment Records: Document all deductions and payments for audit purposes.
💡 Pay Defaults Promptly: If a mistake occurs, pay the tax quickly to reduce surcharge.
💡 Seek Professional Guidance: Consult tax advisors to ensure proper compliance with Section 162.
Failure to comply with Section 162 can result in personal liability for withholding agents, even if the tax is eventually recovered from the taxpayer.
Disclaimer: This article is for informational purposes only. Consult the FBR or a tax professional for official guidance regarding withholding tax obligations.