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The Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue (FBR) and the Accountant General of Pakistan Revenue (AGPR) to allow adjustments for tax deductions under various provisions of the Income Tax Ordinance 2001 and tax credits. This directive aims to facilitate timely crediting for salaried individuals and pensioners, eliminating the need for lengthy refund processes.

The FTO Secretariat in Islamabad initiated an own motion investigation under Section 9(1) of the FTO Ordinance, 2000 based on complaints from teachers Qurrat-ul-Ain Qadeer, Sumera Sajid, Majida Ahmad, Andleeb Fatima, and Asma Bukhhari. These complaints highlighted excessive tax deductions and subsequent hardships faced by taxpayers.

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The investigation revealed that all complainants experienced excessive tax deductions under Section 149 during source deduction, despite qualifying for benefits under Clause (2) of Part III of the Second Schedule to the Income Tax Ordinance, 2001.

In an order issued by the FTO office, it was observed that the current withholding tax procedure at the DAOs level does not align with the legislative intent under Section 149 of the Ordinance. The FTO recommended that FBR, AGPR, and AG, Punjab should consider necessary changes in the SAP module to allow adjustments for taxes deducted under different provisions of the Ordinance and tax credits. This would enable salaried individuals and pensioners to receive timely credits, avoiding the prolonged issuance of refunds under Section 170 of the Ordinance.

The FTO also stressed the need for FBR to establish a robust monitoring mechanism to prevent misuse of the legislative facility at the withholding stage.

In response, the Department noted that withholding agents are monitored as per existing provisions, requiring quarterly e-filing of withholding tax statements under Section 165(1) of the Ordinance and Rule 44(4) of the Income Tax Rules, 2002. However, the Department acknowledged the absence of a mechanism to adjust taxes deducted under other sections and tax credits, failing to fully appreciate the essence of the FTO’s initiative in accordance with the legislative provisions of Section 149 of the Ordinance.

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