Islamabad – The Federal Board of Revenue (FBR) has uncovered a massive tax fraud involving Rs 78 billion in withholding tax evasion on salary income. The discovery highlights significant gaps in tax compliance and enforcement, shedding light on systemic loopholes that have been exploited over several years.
According to reliable sources within the FBR, tax authorities detected the massive evasion through a detailed investigation of tax returns filed for the tax years 2019 to 2024. This forensic investigation revealed alarming discrepancies between the withholding tax deductions claimed by salaried individuals and the actual deductions verified by the Centralized Processing Units (CPRs). The investigation initially focused on individuals within the highest salary tax slab, those earning over Rs 1.5 million annually, where the discrepancies were most pronounced.
Sources from the FBR disclosed that many individuals had taken advantage of the tax authority’s leniency towards salaried taxpayers by inflating their withholding tax credits. Under Section 149 of the Income Tax Ordinance, 2001, employers are legally required to deduct taxes at the time of salary disbursement. Employees are then required to declare their income based on the withholding tax deductions made by employers, as well as income from other sources. However, the discrepancies uncovered suggest that many employees either misreported or overstated their tax deductions to receive inflated refunds.
In response to this staggering Rs 78 billion tax gap, the FBR issued notices under Section 162 of the Income Tax Ordinance, 2001, in an effort to recover the unpaid taxes. One notable business entity alone was required to remit over Rs 200 million in response to these notices. This marks a significant effort by the FBR to reclaim lost revenue and address the scale of the fraud.
The FBR’s investigation was bolstered by the use of advanced technology to cross-check and reconcile withholding tax deductions. “In the past, the FBR largely relied on employers’ withholding tax deductions and employees’ self-declarations without conducting rigorous cross-verification, leading to the accumulation of unjustified tax refunds,” an FBR official revealed. This lack of thorough verification allowed discrepancies to go unnoticed for years, contributing to substantial revenue losses. As a result, the FBR halted tax refund issuance in 2021 to curb further losses.
Recognizing the gravity of the situation, the FBR is now planning an expanded crackdown. The tax authority is stepping up its efforts to monitor withholding tax deductions more closely and is initiating more detailed audits of declared income tax liabilities. The FBR aims to strengthen enforcement to prevent future evasion and ensure that all individuals and businesses comply with the tax code.
To further address these issues and safeguard future tax revenue, FBR officials are emphasizing the urgent need to implement the Synchronized Withholding Administration and Payment System (SWAPS). SWAPS is a sophisticated, streamlined mechanism designed to improve the accuracy of tax collection and prevent exploitation of the withholding tax system. “The strict enforcement of SWAPS will be critical to ensuring greater transparency, reducing discrepancies, and ensuring compliance across the board,” the official emphasized.
This major tax evasion revelation by the FBR represents a turning point in Pakistan’s approach to tax oversight. The discovery not only underscores the need for more rigorous enforcement of tax policies but also signals the government’s commitment to closing tax loopholes and bolstering national revenue collection. With these efforts, the FBR aims to enhance tax compliance, drive economic growth, and support national development.