In a recent development, the Federal Board of Revenue (FBR) of Pakistan has once again come under scrutiny for its aggressive tactics in dealing with taxpayers, particularly salaried individuals. The FBR has been issuing notices to employees, alleging that they have improperly claimed credits for income tax deductions in their tax returns. This action has sparked concerns about the fairness and transparency of the FBR’s operations, with critics arguing that it is an attempt to meet revenue targets at any cost.
The Karachi Tax Bar Association (KTBA) has raised alarms over what it describes as harassment of salaried individuals by the tax authority. In a letter to the Member of Inland Revenue Operations, the KTBA pointed out that many employees have received notices regarding discrepancies in their tax deductions. These issues often arise when FBR officers are unable to verify tax deductions on the IRIS portal or cannot recover withheld tax amounts from employers. However, critics argue that holding salaried individuals responsible for such discrepancies is both unfair and illogical.
In Pakistan, employers are responsible for deducting income tax from employees’ salaries each month and depositing the withheld amount with the FBR. At the end of the financial year, employees file their tax returns, which are based on salary certificates issued by their employers. These certificates detail the employee’s earnings and tax deductions, allowing them to claim any applicable refunds or credits. However, when discrepancies occur, it is the employer’s responsibility to ensure that the correct tax amount has been deposited. As the KTBA emphasizes, any shortfall or unpaid tax should be addressed by questioning the employer—referred to as the withholding agent—not by penalizing the employee.
This latest move by the FBR has raised concerns about the increasing burden on the salaried class. The salaried individuals in Pakistan already face some of the highest income tax rates, with few exemptions granted compared to other sectors of the economy. By focusing on employees instead of employers, the FBR appears to be diverting attention from its own shortcomings and the structural issues within the tax system.
Tax experts suggest that this heavy-handed approach is indicative of the immense pressure placed on tax officers to meet increasingly difficult revenue targets. According to reports, the FBR has been resorting to aggressive tactics, such as threatening tax practitioners to withdraw complaints against the tax authority filed with the Federal Tax Ombudsperson (FTO) regarding delayed refunds. In one case, a tax practitioner was warned that a delayed refund would only be processed if the taxpayer withdrew their complaint with the FTO. In another instance, an FBR official allegedly threatened to prevent a refund for a year if the complaint wasn’t withdrawn, demonstrating the coercive nature of the tax bureaucracy.
This troubling behavior highlights a wider pattern of manipulation by the FBR, with the tax authority seemingly willing to employ any means necessary to boost collection figures, regardless of fairness or ethical considerations. With a massive Rs468 billion shortfall in its revenue target for the July-January period, fears abound that this figure could grow to Rs1 trillion by the end of the fiscal year. However, experts argue that resorting to such ineffective and unjust methods will not solve the underlying problem.
The core issue lies in the narrow tax base and widespread tax evasion. The FBR’s reliance on short-term measures such as harassing salaried individuals or pressuring taxpayers to withdraw complaints will do little to address these fundamental problems. Structural reforms are needed to widen the tax base, reduce tax evasion, and improve the overall efficiency and transparency of the tax system.
For the tax system to become more effective and to regain the trust of taxpayers, the FBR must move away from these counterproductive tactics. Without comprehensive reforms, the FBR will continue to struggle in its efforts to meet revenue targets, and the public’s confidence in the system will continue to erode. The need for a fair, transparent, and efficient tax system has never been more urgen