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Issues in Withholding & Monitoring of Withholding of
under the Income Tax Ordinance, 2001
August 20, 2013; KHI Conducted by:Syed Zafar AhmedDirector

Welcome Note
You all are welcome here today in this presentation.
Todays workshop is based on the law of Withholding of Income Tax and its Monitoring by the Income Tax Department under the Income Tax Ordinance, 2001.
The withholding of income tax is the job which is done for FBR and FBR does not pay for this job. The withholding agent does not get any salary for it. Yet, FBR punishes and penalizes him if the job is not done properly. The subject therefore demands it due attention and it why your very active participation is needed to achieve this very objective. We thank you all for once again.
ParticipationAdding ideasListeningNo personal attacksTimelinessCell phones off or on silent modeThank you for not smoking Please share with us your: • Name• Company/Organization• Department/Division Withholding provisions Payments for goods, services, contract, Payments to media, shares trading & properties Other payments to Residents Royalties & FTS to Non-Residents Other payments to Non-Residents Rates, dates of deposits, Exemptions & Withholding Statements Case laws on Monitoring of Withholding of Income Tax A. Collection at Imports I Collection on imports Section 148 a General provisions;- Collector of Customs every importer of goods 5% of the value of goods in the case of industrial undertakings,5% in all other cases of companies, 5.5% in case of all other taxpayers.
12% in case of a foreign produced film imported for the purpose of screening and viewing Collection at Imports i. Collection on imports Section 148b Special provisions- Collecting on value of goods determined under customs law inclusive of Custom duty, FED & Sales tax the same time when custom duty is collectable.
- Full & Final Tax for Commercial Importer(Option for NTR if normal tax is not less than 60% of deduction) - Exemption by CIT CIT could not from TY 2008 to upto June Wef June 2013 CIT can.
Withholding from Salary ii. Withholding on Salary Section 149a) General provisionswithholding agent Every person responsible for as per the Slab of Rates Withholding from Salary ii. Withholding on Salary Section 149b) Special provisions; Limit of taxable salary for men tax payer is 400,000/- p.a.
Limit of taxable salary for women tax payer is 400,000/- p.a.
Deduction will be reduced by 40% for only full time teacher or a researcher if working in non-profit education/research institution, duly recognized by HEC or a Board or a Deduction will be reduced by 50% for senior citizen employee if the age was 60 at the beginning of TY and the taxable salary income is upto 1,000,000/-.
Withholding from Salary ii. Withholding on Salary b) Special provisions;- The employer can make the following adjustments for any excess deduction of taxfor any deduction of tax on Phone & Mobile Phone billsfor any deduction of tax paid with M.V. Tax challanfor any deduction of tax paid on cash withdrawalsfor any deduction of tax paid on new car/jeep The employer can further give the following tax credits on Charitable donationson Investment in Shares/Units/Life Insuranceon Investment in Approved Pension Fundson payment of interest on House Loans. Withholding from Dividend iii. Withholding on Dividend Section 150a) General provision; - withholding agent Every company paying dividend - withholding from Following share holders receiving dividend.
- Public company @10%- Private company @ 10%- Insurance company @ 10%- Others @ 10% gross amount (including Zakat).
Withholding from Dividend iii. Withholding on Dividend Section 150 b. Special provisions - Deduction of tax on dividend will become 7.5% in the following cases.
. Dividend paid by a mining company paid to a non- resident company.
. Dividend paid by a Power project company privatized by WAPDA.
. Dividend paid by a company engaged power generation project.
Dividend Income & Companies; Now clearly NTR Withholding on Savings Schemes iv. Withholding on profit on Section 151(1) (a) DSC, SSC, Post Office Savings Accounts a. General provisions; - Withholding agent National Saving Center, Post Offices - Withholding from the recipient of profit / yield - Withholding rate after Zakat amount if paid by the recipient Withholding on Savings Schemes iv. Withholding on profit on Section 151(1) (a) DSC, SSC, Post Office Savings Accounts b. Special provisions; Deduction of income will not be made in the following cases.
Profit on investment in NSS purchased before 30/6/2001.
Profit on Mahana Amadni Account if profit is not > 1k pmProfit paid to certain recipients.
With holding on profit from Bank Account
Section. 151(1)(b)
a General provisions - withholding agent Bank, financial institution.
- withholding from recipient of profit / interest on Profit & Loss Bank Account or deposit - withholding rate net amount of profit interest after Zakat amount if paid by the Account holder. With holding on profit from Bank Account
b Special provisions - Deduction of income tax will not be made in the following cases.
. Profit / interest paid to AKDN – Pakistan.
. Profit / interest paid to NIT.
. Profit / interest paid to Mutual funds of ICP.
. Profit / interest paid to Mutual funds of Investment Company.
Withholding on profit from Gilts Section 151(1)(c)
a General provisions.
- withholding agent - withholding agent recipient of profit / yield on government securities. - withholding rate - withholding on net amount of profit/yield after Zakat amount if paid by the recipient. Withholding on profit from Gilts Section 151(1)(c)
b Special provisions.
Deduction of income tax will not be made in the following cases.
. Profit / yield paid to AKDN – Pakistan . Profit / yield paid to NIT . Profit / yield paid to Mutual Fund of ICP . Profit / yield paid to Mutual Fund of Investment Company Withholding on profit interest on loan
a General provisions - Withholding Agent - Banks, Financial institutions.
- Company- Finance Society - Withholding form - recipient of interest / profit from any loan, bond, debentures, certificate instrument of any kind.
- Withholding rate amount of profit / yield after Zakat amount if paid by the Withholding on profit interest on loan
b Special provisions Deduction of income tax will not be made in the following cases.
- Profit / yield paid to AKDN – Pakistan- Profit / yield paid to NIT.
- Profit / yield paid to Mutual Fund of ICP- Profit / yield paid to Mutual Fund of Investment Company Withholding on Royalty & Technical fee to
N. Resident Section 152(1)
A General provisions.
- Withholding Agent Payer of Royalty or Fee for Technical Services.
- Withholding from non-resident person - withholding Rate gross amount of Royalty or FTS Withholding on Royalty & Technical fee to
N. Resident Section 152(1)
b Special provisions
Deduction of 15% can be lowered if provided under the Double tax Avoidance treaty with the country of the Non- Resident.
The deduction of 15% tax will be full and final tax on the Non Resident If there is a lower rate of tax in the DTT or no tax at all, there will not needed any further Certificate from any Tax Commissioner Withholding on Contract Non Residents
Section 152 (1A)
A General Provisions Withholding agent Every Payer.
Non-resident person. gross amount of the following; a contract under a construction,assembly or installation project a sub-contract under a construction,assembly or installation project Withholding on Contract Non Residents
Section 152 (1A)
a contract for supply of supervisory activities for the above project a contract for construction or for related services.
contract for advisement services rendered by T.V. satellite channels. b special provisions The deduction of 6% tax will NOT be full and final tax on the Non Resident
For getting it to full and final tax @ 6%, the Non Resident will have to file an option with the tax office within 03 months of the start of the TY. This option will work for 03 years for full and final purpose.
Withholding on Premium to Non Residents
Section 152 (1AA)
a General provisions
- Withholding Agent Every Person (Insurance Company) - Withholding from Non Resident Person Insurance Premium or Reinsurance Premium - Withholding rates at the rate of 5% on gross amount b Special provisions
The 5% tax would be full & final tax for the Non Resident Person.
This 5% will be deducted if the Non Resident has a Permanent Office.
(There wont be deduction from the PE on the Premium at all) Withholding from Non Resident Media
Section 152 (1AAA)
a General provisions
- Withholding Agent - Withholding from Non Resident Media Person Advertisement Services - Withholding rates at the rate of 10% on gross amount b Special provisions
The 10% tax would be full & final tax for the Non Resident Media Person.
Withholding; Other Payments to Non-Resident
Section 152 (2)
A. General provisions
withholding agent withholding from Gross amount of payment.
B. Special Provision
20 % can be lowered if given under the DTT with country of the N.Resident.
The 20% will not apply on the following payment - Payment of Salary to N.Resident- Payment of Dividend to N.Resident - Payment of Rent to N.Resident - Payment of Prizes on prize bond to N.Resident - Payment of Brokerage and Commission to N.Resident Withholding; Goods, Services & Contract;
Non Resident Section 152 (2A)
General provisions
-
Withholding Agent Prescribed Person (153 (7)) Non Resident with PE Withholding rates Payment for Goods 3.5%payment for Services 6%payment for Contract 6% gross amount of payment b Special
- Gross amount will include the amount of sales tax - No Special Rates - The rates of deduction on transport services will be 2%- No limits of 10k or 25k apply - Payment made to commercial importer- Payment of refund of Security deposit- Payment of purchase under lease and buy bank arrangement Withholding; Goods, Services & Contract;
Resident Section 153 (1)
a General provisions - Withholding Agent - Ever one except for - Non ST registered person - AOP with less than 50M turnover- Individual with less than 50M turnover - Withholding from Payee; Only Resident person. - Withholding on Gross amount of payment Withholding; Goods, Services & Contract;
Resident Section 153 (1)
b General provisions
- Withholding rates In case of Company Payment for Goods 3.5% Payment for Services 6% Payment for Contract 6% In case of Non Company Payment for Goods 4% Payment for Services 7% Payment for Contract 6.5% Withholding; Goods, Services & Contract;
Resident Section 153 (1)
c Special
- Gross amount will include the amount of sales tax - Tax shall be deducted @ 1.5% in case of rice, cotton seed/edible oil.
- The rates of deduction on transport services will be 2%- Withholding shall be made on goods only where annual amount of purchase from a single party exceeds 25,000/-.
- Withholding shall be made on services & contract only where annual payment to a single party exceeds 10,000/-. The withholding shall not be made in the following cases.
- Payment made to commercial importer
- Payment of refund of Security deposit
- Payment of purchase under lease and buy bank arrangement
- Payment for securitization of receivable to SPV to the originator
Withholding from Export Service Providers
Section 153 (2)
a General provisions
- Withholding Agent Every Exporter or Export house - Withholding from Service providers of the following ServicesStitching Printing Embroidery Washing - Withholding rates at the rate of 0.5%.
b Special provisions The 0.5% is full and final tax. It is full and final for residents only.
Note; Non Resident with PE are still here Collection of Tax;
Traders & Distributors Section 153 A
a General provisions
- Collecting Agent Every Manufacturer - Collecting from Distributors, Dealers & Wholesalers - Collection rates @ 0.1% on gross amount of sales b Special provisions
•
This is an advance tax.
Retailers are not covered.
Gross sale is inclusive of ST, FED & Trade Discounts on the bills; Cir. 01 of 2012 The rate will be 0.1% in case of cigarette mfg.; SRO 1077 of 2012; Cl. 28 of P II of 2nd Sch.
Withholding on Export proceeds Section 154 (1)
a General provisions - Withholding Agent - Withholding from - Withholding rate 1% of the proceeds of exports.
- Withholding on gross amount of export proceeds b Special
The 1% is full and final. It is for commercial exporter and mfg. exporterThere is an option for NTR if the normal tax is not less than 50% of deductions. Withholding on Export/Import Indenting
Commission Section 154(2)
General provisions - Withholding Agent Indenting commission Agent - Withholding from - Withholding rate gross amount of commission Special provisions Final Tax Regime Withholding on payment to indirect exporter
a General provisions Withholding Agent indirect exporter Same 1% as is applicable gross amount of proceeds of sale of goods to an exporter under in Land b Special provisions Final Tax Regime Withholding on proceeds from sale out of EPZ
Section 154 (3A)
a General provisions - Withholding Agent - Withholding from - Withholding rate gross proceeds for sales (export) out of EPZ b Special provisions Final Tax Regime Withholding on payments to indirect Exports
Section 154 (3B)
a General provisions - Withholding Agent Exporter or Export house registered under DTRE Rule , 2001 - Withholding from Indirect exporter - Withholding rate - Withholding rate gross payment under a firm contract b Special provisions Withholding; Payment of Rent
Section 155
a General provisions - Withholding Agent FG, FG, LG, Company, NPO, Diplomatic missionSchool, College, University, Tuition Centre, Caching Centres, Boutique & Beauty Parlour, Hospital, Clinic & Maternity home,Indv. or AOP paying rent of 1.5 M pa - Withholding from Recipient of rent - Withholding rate Slab of rate; Ind. & AOP 15% on gross rent gross amount of rent including the rent of furniture & fixture & services Withholding; Payment of Rent
Section 155
b Special provisions - Tax is deducted with respect to the basic threshold of taxable limit i.e. 150,000/- p.a. for Individuals & AOP. If payment is being made to
INDIVIDUAL AND ASSOCIATION OF PERSONS
GROSS AMOUNT OF RENT
RATE OF TAX
– Rs.1,000,000 10% of the gross amount exceeding Rs.150,000 15% of the gross amount exceeding If payment is being made to
A COMPANY
GROSS AMOUNT OF RENT
RATE OF TAX
Any Gross amount of Rent Withholding on Prize & Winnings
Section 156
a General provisions - Withholding Agent Every person paying - Withholding from Recipient of the following - prizes on prizes bond- winning form raffle - winning form lottery- winning form quiz- prizes by company for - prizes from cross word Withholding on Prize & Winnings
Section 156
Withholding rates gross amount of the prize - Where the prize in not in cash but in kind the tax shall be calculated on the FMV of the prize.
- The 15% or 20% deduction or deductible is full & final tax.
Withholding from Petrol pump Operator
Section 156 A
a General provisions - Withholding Agent Person selling petrol products - Withholding from Petrol pump operator - Withholding rate on amount of commission or discount to the petrol b Special provisions - Clause No. 43C of Part IV of the 2nd Schedule to the ITO, 2002 Withholding on withdrawal from Pension Fund
Section 156B
a General provisions - Withholding Agent Pension Fund Manager - Withholding form Recipient of the pension fund - Withholding rate average rate of tax for the last three years.
the following accounts- any amount withdrawn before the - amount withdrawn in excess of 50% at or after the Withholding on withdrawal from Pension Fund
Section 156B
b Special provisions - tax shall not be deducted on withdrawal before the retirement age where the person suffered any disability so that he does not continue employment - tax shall not be deducted on withdrawal in excess of 50% where the balance in invested in any of the following- approved income payment plan- paid in to life insurance company- or transferred to another individual pension account- VPS Rules 2005 is important to read. Withholding on cash withdrawal from a bank
Section 231 A
a General provisions - Withholding Agent - Withholding from - Withholding rate excess of 50,000/- in a day b Special provision - The tax will also be deducted if bearer pay order is made.
- The tax will also be deducted if cash in withdrawn from ATM Withholding on Bank Transactions;
Section 231 AA
a General provisions - Withholding Agent Bank, NBFI, Exchange Company - Withholding from person doing certain transaction - Withholding rate excess of 25,000/- in a day b Special provision - The tax is collected on Purchase, Sale, Encashment & Cancellation of DD, PO, CDR, SDR, STDR, RTC & any other bearer instrument - The tax will also be collected on cash transfer on Online, TT, MT & ET.
- Cross cheques, Inter Bank transfers etc. are exceptions.
Collection on new Motor Vehicles;
Section 231 B
a General provisions - Collecting Agent Motor Registration Authority - Collecting from Owner of new Cars & Jeeps - Collection rate Engine Capacity of Vehicles b Special provision - No tax will be deducted from FG, PG or Foreign diplomat or diplomatic mission - The tax paid is advance tax and is adjustable- Only locally manufactured Motor Vehicles are to be paid with Collection on new Motor Vehicles;
Section 231 B
b Special provision Amount of tax
Withholding on Brokerage and Commission
Section 233
a General provisions - Withholding Agent FG, PG, LG, CompanyAOP, constituted by or under any law - Withholding from - Withholding rate - Withholding on b Special provisions - If the agent retains commission amount with him and remit the rest amount to the Principle it is the responsibility of the Principal to collect tax.
- Deduction of tax on adverting commission will be 5%.
- Even if the tax was deductible but was not deducted, it will be full and final tax Collection of tax on commission of members of
stock exchange Section 233 A(1)(a)&(b)
a General provisions - Collecting agent KHI Stock ExchangesLHR Stock Exchange ISB Stock Exchange - Collecting from.
Members of Stock Exchange.
- Collection rate on purchase and sales b Special provisions FTR ends from the TY 2009 Collection of tax by NCCPL
Section 233 AA
a General provisions - Collecting Agent - Collecting from Members of Stock Exchange - Collection rate respect with Margin Financing b Special provision Advance Tax Collection of tax on Transport business and passenger
vehicle with Motor Vehicle tax Section 234
a General provisions - Collecting agent Collector of M.V. tax - Collecting from.
Owner of Motor Vehicle - Collection rate - laden weight in case goods transport - seating capacity in case passenger transport- Engine capacity in case private transport Collection of tax on Transport business and passenger vehicle with
Motor Vehicle tax Section 234
b Special provision Amount of tax
Collection of tax on Transport business and passenger
vehicle with Motor Vehicle tax Section 234
b Special provisions No tax will be collected for more than 10 years old private car.
No tax will be collected for more then 10 years old passenger transport if the seating capacity is more then 10 No tax will be collected for more then 10 years old Good transport vehicle whose laden weight is less then 8120 KG.
Final Tax Regime; No more Collection of tax from CNG Stations
Section 234 A
a General provisions - Collecting agent Person making the gas Bill - Collection from - Collection rate amount of gas consumption charges b Special provisions - Final Tax Regime for CNG Stations - Not eligible for any other credit Collection of Tax on Electricity bills
Section 235
a General provisions
- Collecting agent - Collection from.
Industrial and commercial consumer - Collection rate amount of the bill.
b Special
- Advance tax for companies- Treated as minimum tax for individuals & AOP (s) if bill up to 30k pm- Treated as advance tax for individuals & AOP (s) if bill more than 30k pm Collection of Tax on Phone bills;
Section 236
a General provisions - Collecting agent Phone Company Person issuing or selling prepaid telephone cards - Collecting from.
User of phone or purchaser - Collection rate in case telephone 10% after 1k pm in case of mobile phone & prepaid Amount of bill or sale prices of pre paid Card b Special provisions Advance tax Collection of income tax on Auction. Section 236A
a General provisions
- Collecting agent - Company - Foreign Contractor or consultant - AOP constituted by or under law.
- FG, PG, LG, Collector Customs - Collecting from.
- Collection rate Gross price of goods b Special provisions Advance tax
Collection of Tax; Domestic Air Tickets;
Section 236 B
a General provisions
- Collecting agent - Collecting from.
- Collection rate Gross amount of Domestic Ticket b Special provisions Advance tax
Not applicable on FG & PGNot applicable if exempted by Commissioner Collection of Tax; Sale or Transfer of Immovable
Property; Section 236 B
a General provisions
- Collecting agent Registrar of Property - Collecting from.
Seller or Transferor - Collection rate Value of Property b Special provisions Advance tax
Not applicable on FG, PG & LG Collection of Tax; Functions and Gathering;
Section 236 D
a General provisions
- Collecting agent Owner of marriage hall, marquee, hotel, restaurant, commercial lawn, club and community - Collecting from.
Person arranging functions - Collection rate total amount of bill b Special provisions Advance tax
Collection of Tax; Foreign Produced TV Plays and
Serials; Section 236 E
a General provisions
- Collecting agent Licensing Authority - Collecting from.
Value of foreign produced plays and serials b Special provisions Advance tax
Collection of Tax; Foreign Produced TV Plays and Serials; Section
b Collection rate Amount of tax
Foreign Produced TV Drama Serials 100,000 per episode Foreign Produced TV Plays (single Collection of Tax; Cable Operators and Other
Electronic Media; Section 236 F
a General provisions
- Collecting agent Pakistan Electronic Media Regulatory Authority - Collecting from.
Value of foreign produced plays and serials b Special provisions Advance tax
Collection of Tax; Cable Operators and Other Electronic Media;
Section 236 F
Tax on Licence Fee
b Collection rate Licence Category as Provided in PEMRA
Tax on Renewal
Collection of Tax; Distributors, Dealers or
Wholesalers; Section 236 G
a General provisions
- Collecting agent - Collecting from.
Distributors, dealers or wholesalers Gross amount of sales b Special provisions Advance tax
Collection of Tax; Retailers; Section 236 H
a General provisions
- Collecting agent Manufacturer, Wholesaler, Comm. Importer - Collecting from.
Gross amount of sales b Special provisions Advance tax
Collection of Tax; Educational Institutions; Section
a General provisions
- Collecting agent All Educational institutions - Collecting from.
Person who apply for admission Gross amount of sales b Special provisions Advance tax
Collection of Tax; Dealers, Commission Agents and
Arhatis; Section 236 J
a General provisions
- Collecting agent - Collecting from.
Dealers, commission agent and arhatis amount of issuance or renewal of license for b Special provisions Advance tax
Collection of Tax; Dealers, Commission Agents and Arhatis; Section
c Collection rate Amount of tax
Any other category B. Deduction of tax, deposit of tax and tax
i Deduction of tax (Timing) Deduction of tax in required to be made at the time when the amount is actually paid.
In case of profit /yield/ interest on debt the deduction is required to be made at the earlier of credit or payment.
B. Deduction of tax, deposit of tax and tax
ii Deposit of tax (Time Frame) The tax collected or deducted is required to be deposited within seven (07) days from the end of each week ending on every Sunday in which the collection or deduction was made. Thus 14th of the same month 21st of the same month 28th of the same month 7th of the next month The tax collected or deducted by FG, PG is required to be deposited by them on same day. B. Deduction of tax, deposit of tax and tax
iii Tax Certificates
- Every withholding agent in required to furnish a certificate of deduction of tax.
- Income Tax Challans shall be provided along with the Certificates.
- The time limit to issue the certificate is 15 days from the end of the financial year - The time limit to issue the certificate on request is 7 days of request C. Monthly and Annual Statements
- Every withholding agent is required to report the exercise of withholding to the FBR.
- The intervals are monthly and annually. - There is one single common format of the monthly statement which is required to be submitted by the 15th of every following month.
- The Annual statement for Salary were separated .
- In case of E Filing the format provided on the portal is to be used.
- Annual statement is required to be submitted within 2 months of the end of the financial year June 30, 200x. C. Monthly and Annual Statements
- In case of E Filing there is one point submission of the withholding statement.
- Extension may always be applied both for the Annual and the monthly - In case of E Filing the option for extension is not yet operational. The extension is therefore to be filed manually. - A Reconciliation of Monthlies & Annuals with the Return of income or the Accounts will have to be filed if the CIT asks for it.
D. Monitoring of Withholding Taxes
- On Annual basis the income tax department carries out the exercise of monitoring of - The aim of monitoring is to take an assurance as to whether the withholding agent have rightfully discharged their duties.
- Normally all the Books of Accounts constituting of General LedgerCash BookParty LedgerVouchersBank statements are called for examination.
- Order for short deduction of tax may be passed and consequently all the procedures for assessment and recovery may be initiated. E. Non compliance of the Withholding Provision
Consequences of non-compliances may take any one or more than one of the following; i - Penaltiesii - Additional tax (Default Surcharge)iii – Disallowability of Expenses.
E. Non compliance of the Withholding Provision
i Penalties for non filing of WHT Statements
Where any monthly statement is not filed in time, penalty of 2,500/- per day will be paid for every single day till it is filed. The minimum penalty is however 50k for even one single day. Therefore 50k will cover the 20 days of non filing.
E. Non compliance of the Withholding Provision
i Penalties for non payment of tax;
If the tax due is not paid as required Officer may penalize @ 5% of amount of tax not deposited.
The % of 5 will increase to 5% + 25% for the 2nd time.
For the 3rd and sub sequent default the penalty will be as .
5% + 25% + 50% =100% of the tax non-deposited.
E. Non compliance of the Withholding Provision
ii Additional tax (Default Surcharge)
- Where the tax collected or deducted is not deposited timely the tax officer may charge additional tax @ 18% for the period of late deposit of tax till it is actually deposited. - Earlier the rate was 12% which took effect from July 01,2004. - Earlier than that the rate was 18% This would mean any non-deposit detected today relating to year before 2009 and 2004 would still be charged at 12% and 18% respectively. E.Non compliance of the Withholding Provision
iii Disallowability of Expenses.
Where the following payments are made without deduction of tax, thecorresponding expenses will not be allowed unless the tax is paid.
- Payment for salary.
- Payment of profit on rest.
- Payment to Non-Resident- Payment for services or fee- Payments of rent.
- Payment Brokerage & Commission. Thank You For Your Participation

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