It is also highlighted that the tax withheld by the provincial government is required to be deposited into the government treasury on the same day under Rule 43(a) of the Income Tax Rules 2002. According to the FBR, under section 153(1) (c) of the Income Tax Ordinance 2001, every prescribed person at the time of making payment on account of execution of a contract is required to deduct tax from the gross amount payable at the rates prescribed in the First Schedule of the Income Tax Ordinance 2001. The rates may vary in case the contractor is on the Active Taxpayer List (ATL) or otherwise.
The provincial governments, any development authority, other body corporate or institution established under a provincial law, a corporation, company or a regulatory authority setup, owned and controlled either directly or indirectly by the provincial government is required to withhold tax inter alia on payments on account of contracts executed, the FBR said.
The FBR is in the process of ensuring completeness of its withholding regime, besides ensuring that tax is deducted and deposited at the correct rates as prescribed in the law, the FBR maintained.
In this process it has come to FBR knowledge that: In certain cases taxes are not withheld from contractors at the time of payment mainly due to inadvertence; or the tax is withheld at the lower rate without verifying the status of the contractor from Active Taxpayer List which requires application of higher rates if the taxpayer is not on ATL; or in many cases, the departments, companies and authorities directly or indirectly controlled by the provincial governments do not withhold tax on an inadvertent presumption that such withholding is limited to payment directly by the provincial governments.
Tax so withheld by the provincial governments is required to be deposited into the government treasury on the same day under Rule 43(a) of the Income Tax Ordinance 2001, the FBR said. The FBR appreciates provinces'' cooperation in the past and further suggests provinces to issue necessary instructions to all government departments, development authorities, corporation and regulatory bodies working under provincial governments to withhold tax and deposit the same into the government treasury in the manner specified in compliance with the requirement of law, the FBR added.