The Federal Tax Ombudsman (FTO) has uncovered irregularities by a telecom operator involving issuing incorrect tax deduction certificates to salaried individuals. This malpractice, which went unnoticed by the Federal Board of Revenue (FBR), has prompted the FTO to direct the FBR to investigate the pattern of such discrepancies.
The issue came to light after a salaried individual filed a complaint under Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000, alleging that the Wateen company failed to provide a tax deduction certificate reflecting the correct amount of tax withheld. The complainant, a regular filer and long-time user of the telecom company’s internet services, stated that the certificate issued this year did not match the 15% withholding tax (WHT) on the total amount paid, as required under the Income Tax Ordinance, 2001.
Despite approaching the FBR for redressal, the complainant received no resolution, prompting him to escalate the matter to the FTO. The correct tax deduction certificate is essential for filing his tax return.
Telecom Company’s Explanation
In its response, the telecom company attributed the discrepancy to a structural adjustment in its billing system. It explained that the Internet Monthly Line Rent (MLR) had been split into two components: Internet and Infrastructure (Infra). The company claimed that the Infrastructure component is not subject to withholding tax, which reduced the taxable amount and, consequently, the total reflected on the tax certificate for the fiscal year 2024.
FTO’s Observations and Recommendations
The FTO noted that while the telecom company provided an explanation for the billing difference, it failed to cite any legal provision justifying the separation of the Internet MLR into two components and the exclusion of one from the withholding tax ambit. The FTO expressed concern that similar practices could be adopted by other telecom operators, further complicating tax compliance for individuals.
The FTO also criticized the FBR’s negligence, highlighting that the tax authority failed to act on the taxpayer’s alert regarding reduced tax deductions. This inaction, the FTO stated, amounts to maladministration.
The FTO has recommended that the FBR Members for Inland Revenue (Operations and Policy) review the telecom company’s explanation in light of relevant tax laws and submit their findings within 45 days. The FTO emphasized the need for compliance and vigilance to prevent similar irregularities in the future.
This case underscores the importance of transparency and accountability in tax collection processes, particularly in ensuring that taxpayers receive accurate documentation for filing their returns.
