News: Withholding tax fails to discipline non-filers
Deducting withholding tax on bank transactions of over Rs50,000 per day is a measure introduced to penalise non-filers of income tax, but it is effectively being used to punish the filers, as banks do not use technology to verify their status.
The active taxpayer status can be verified from the taxpayers’ facilitation portal of the Federal Board of Revenue (FBR) by any individual or institution by entering IT in the first column and CNIC number of the account holder in the of registration number column. This is an easy process which does not require a specific request by the account holder to register him/her as an active filer.
All the banks have the CNIC number of each account holder. They can carry out the verification process to facilitate their customer. Or if this is not possible, each branch can immediately verify the active taxpayer status whenever a customer places a request.
Instead, when you visit some bank branches they ask you to provide the National Tax Number which is then sent to their headquarters for verification. It may take a day or two.
In the meantime, if the customer wants to withdraw a hefty amount in cash, the bank deducts 0.3 percent from filer and 0.6 percent from non filer. However, in case of a documented transfer like cross check or draft made through the account there will be no deduction in case of filer and 0.4 percent in case of non filer. This way the money transfer is documented at both ends.
The filers have been protected by FBR. The banks however are not facilitating them. Until last year, the income tax filer had to provide the NTN number to the bank and their head office verified the active status through this number.
The NTN-based verification was not fully transparent as numerous NTN numbers were missing from the active taxpayers list because the CNIC was made NTN at least for salaried persons.
NTN is used for verification of association of person and registered companies. The FBR from 2015-16 announced that status of active taxpayers for salaried class can be verified by entering the CNIC number in its active tax payer portal.
Some banks verify the status promptly while some lament they do not have internet facility at their branch. When asked how they conduct online business they say the connectivity is restricted to the bank only.
The reason given is employees are not allowed to go on other websites. This seems absurd. Instead of ensuring discipline among workers, the bank restricts the use of technology.
One consumer said this restriction is useless when web connectivity is freely available in smartphones. He said in order to get registered as an active taxpayer; he brought a copy of verification from the FBR portal and requested the staff to verify it through their smartphones.
But they were hesitant because their standard operating procedures do not allow this. They have to adopt a lengthy route for verification.
If a customer wants a pay order worth Rs7.7 million that he has to pay the same day, the bank deducts 0.4 percent as withholding tax amounting to Rs30,800 if his status as an active taxpayer is not confirmed in time.
The bank will then deposit this amount in the FBR account in seven days. To keep this amount from debiting to the FBR’s account, the customer has to visit the bank again within seven days.
Once the amount is transferred, the customer will have to go through the hassle of refunds. The story of late refunds and associated hassle and palm greasing is known too well in business circles. Getting refunds for an individual will be even more difficult.
It is very sad that even our private sector is hesitant to use modern technology. Verifying the active taxpayer status hardly takes a minute or two. The State Bank of Pakistan’s banking control department needs to take measures to facilitate bank depositors.
The non-filers face no hassle, as the law is clear that the deduction will be made from their banking transactions. The filers are treated as culprits till their active status is verified after lot of hassle.