Withholding tax is a requirement of government for the buyer of any service or item of income to withhold or the deduction of tax from the payment which is paid to the government.
Why Withholding Tax?
- Less interference with the tax authority
- Helps to expand the tax net
- Daily basis revenue generation
- Includes Tax Evasion
- Economics documents
- Maintaining flow with the least cost
Withholding Tax Trend:
Withholding tax (WHT) regime is a worldwide trend and the largest source of national revenue in Pakistan. The dependence on WHT has also been on the rise in recent years. Of the 740 (b) direct tax reserves for the financial year 2012, Rs.422 (b) with a share percentage of 57% was derived from different holding taxes.
Scores Of Withholding Tax:
WHT has been part of the tax system in one way or another since Government and taxpayers directly taxed the two scores.
- Provides regular revenue to the government for its expenses and operations throughout the year
- It provides taxpayers with an opportunity to meet their obligations in qualifying installments.
Directorate General of Withholding Tax:
Currently, globalization has forced many countries to adapt their economies to new trade and investment policies included in free trade agreements, tax policies, and alignment. Countries cannot close their borders or their economies. Tax policies are inseparable from international economies. Therefore, the Directorate General of Withholding Tax has been set up by the Finance Act 2008 under Section 230A of the Income Tax Ordinance 2001 to review and manage these holding tax systems while maintaining this competitive environment.
Also Read: What are the penalties of being non-filer?
Efficient Source Of Revenue:
WHT is an efficient source of revenue. Their share of direct tax revenue is about 41%. Rise of Rs.422(b) in 2012 as compared to Rs. 5(b) in 1991 talks about rapid growth and consequent heavy dependence on withholding tax.
According to the Income Tax Act, 1922 tax deduction was from two source salaries and interest on securities. Different provision of the tax law was introduced later to extend WHT net in the 1990s, by providing WHT on large-scale transactions.
The main withholding provisions are related to salaries, imports, exports, commissions and brokerage, dividends, contracts, loan interest, utilities, car taxes, stock exchange provisions, and non-residents, etc. with different rates.