FBR Expects to Find Rs 100 Billion in Missing Tax Revenues from Audit of Telcos

The Federal Board of Revenue (FBR) is going to conduct a withholding income tax audit of all telecom companies for the last five years, which may result in detection of tax evasions/discrepancies to the tune of Rs. 100 billion.

A Member of FBR, while briefing the Senate Standing committee on Information Technology and Telecommunication, said that besides WHT income tax there were issues in sales tax as well and Rs. 89 billion are still outstanding against the cellular companies. Though sales tax is currently being collected by the provinces, and only they can comment, there may be still some issues, he added.

Based on the outcome and inference(s) drawn from the withholding income tax monitoring exercise (withholding audit), audit for the last five years of all telcos could be opened as per as per the legal provision.

Tax Evasion of Rs. 100 Billion

If the same trend and results continue, tax evasion/discrepancies from Rs 80-100 billion could be found.

FBR official said that FBR collects around Rs 48 billion WHT, to which the committee chairman Shahi Syed said that as per his calculations, the figure should be around Rs. 113 billion.

The board informed the committee in writing that presently four mobile/cellular telephone companies – M/s Telenor Pakistan (Pvt.) Limited, M/s. Pakistan Mobile Communication Limited (Mobilink), M/s Telecom Mobile Ltd. (Ufone) and M/s CM Pak Ltd. (Zong) are operating in Pakistan.

As per requirements of the Income Tax Ordinance 2001, the Telcos are deducting withholding income tax from millions of customers, and in the process, generating a massive volume of customers’ transactions on daily basis.

Telcos are also required to collect Sales Tax (in the case of provinces) under concerned provincial sales tax laws whereas Federal Excise Duty (in the case of Islamabad Capital Territory) is being collected under Federal Excise Act 2005.

FBR’s Pilot Project

Considering the massive challenge involved in the analysis of transactional data of a massive number of subscribers of each cellular company generated on a daily basis, FBR has launched a pilot project for devising an IT-based mechanism for accessing subscribers’ withholding tax transactional data for ensuring effective monitoring of withholding taxes by the Telcos.

Under this pilot project FBR, with the assistance of the Pakistan Revenue Automation (Pvt.) Ltd (PRAL/IT Wing), was able to develop a software utility portal. All four Telcos have been required to upload their monthly customers’ transactional data, on the prescribed format and requirements.

For this purpose, necessary support and assistance was sought from Pakistan Telecommunication Authority (PTA), whenever compliance issues arose.

This pilot project/mechanism has been enabled during the current financial year 2017-18 and all four mobile phone companies are now transmitting/uploading their customers’ transactional data on to IT/PRAL provided interface every month since July 2017.

The portal has enabled a more transparent and reliable customers’ withholding tax data transmission to FBR and the position of subscribers’ withholding taxes collected by all four Cellular Companies under section 236 of the Income Tax Ordinance, 2001.

FBR’s IT/PRAL team, in coordination with the concerned Commissioner of Large Taxpayers’ Unit (LTU), remains in constant contact with the concerned Telcos’ technical/management teams to resolve outstanding issues and other requirements as they arise during the process of data harmonization checks by the IT/PRAL team.

Initial Findings

The final data uploaded earlier on the IT-based electronic data link by M/s Telenor Pakistan (Pvt.) Limited was picked up for withholding income tax audit for the months of July to September, 2017.

The concerned field officers along with IT experts from IT/PRAL (FBR) comprising of six members, started conducting field based withholding system audit of consumers’ tax deducted and deposited under section 236 of the Income Tax Ordinance 2001, for the quarter July – September, 2017, at Telenor Head Quarters, Islamabad.

The initial data analysis — according to FBR — reflected short deduction of withholding tax of Rs. 267 million, and the due proceedings under Income Tax Ordinance 2001, in this matter are underway.

Telenor Pakistan, in a statement shared with ProPakistani, said that it disagrees with FBR’s contention in the aforesaid notice and that it has responded with the verifiable details of tax payments provided during the audit and requested the withdrawal of this notice. “We can confidently claim to have carried out all our statutory fiscal obligations”, the statement claimed.

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Withholding income tax audit of other Telcos would also be carried out after taking into account the outcome and inference(s) drawn from the withholding income tax monitoring exercise (withholding audit) of M/s Telenor Pakistan (Pvt.) Limited.

The the Senate Standing committee on Information Technology and Telecommunication has discussed the issue of action taken by Federal Investigation Agency (FIA) against M/s LMK Resources Pakistan Ltd, vendor of Capital Development Authority (CDA) for E-Services project as well as staff of CDA and National Information Technology Board which was found involved in violation of rules/funds embezzlement in the project.

DG Admin CDA said that the hardware for project implementation is ready, but LMKR failed to provide the software. LMKR representative said that they are ready for providing the software. Deputy Director FIA Ejaz Ahmad Khan concurred with DG Admin CDA, saying that hardware was ready but LMKR failed to provide the software.

The committee was directed to start the implementation of the project from Friday (today) and ordered FIA to fix the responsibility on officials involved. It was further revealed that one officer of CDA (Dr. Athar Manzoor) was involved who came from Canada and was hired as Consultant IT, who is at large now.

Pension of PTCL Employees

The committee also discussed the implementation status of recommendations made regarding increase in the pension of all the retired employees of Pakistan Telecommunication Company Limited (PTCL).

Secretary of the IT Ministry said that several pensioners filed contempt petitions before High Courts and Supreme Court (SC) regarding pension increase cases.

While hearing the contempt petitions regarding 12 June decision, the Apex Court on 14 June 2017 directed to submit compliance report within 60 days. On 15 September 2017 i.e. after court vacations, a compliance report was submitted before the apex court.

The compliance report came up for hearing on 1 November 2017, when the apex court directed to deposit arrears of remaining petitioners in the court within four weeks. Supreme court’s orders have been complied with and deposited around Rs 4.8 million with calculation.

Committee expressed annoyance while saying that despite its recommendations for not going into review the Ministry went in review and increased the miseries of around 40,000 pensioners. The committee directed to implement the apex court order and pay the outstanding pensions on humanitarian basis.