In a recent directive, the Federal Tax Ombudsman (FTO) has instructed the Federal Board of Revenue (FBR) to closely examine the issuance of less tax deduction certificates to salaried individuals by telecom companies.
This order follows a complaint lodged under Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000 (FTO Ordinance) against a telecom company’s incorrect tax deduction certificate issuance.
A salaried taxpayer and active filer, who has been using telecom internet services for several years, lodged a complaint after noticing discrepancies in his annual tax deduction certificate.
Under the Income Tax Ordinance, 2001, the complainant expected a 15% withholding tax (WHT) deduction on his total telecom payments. However, the telecom company failed to provide the correct tax certificate, leading to significant discrepancies in his tax filing.
Despite reaching out to FBR for redressal, the complainant received no resolution, prompting him to escalate the matter to the Federal Tax Ombudsman (FTO).
In response to the complaint, the telecom company justified the change, citing a structural adjustment that split the Internet Monthly Line Rent (MLR) into two distinct components:
- Internet Service
- Infrastructure (Infra) Service
The company clarified that the infrastructure component is not subject to Withholding Tax (WHT). As a result, the taxable amount decreased, leading to a lower amount reflected on the tax deduction certificate for the fiscal year 2024.
FTO’s Observations and Concerns
The FTO acknowledged the telecom company’s explanation but raised critical concerns:
- Legal Justification for Separation: The telecom company failed to cite any law permitting this sudden structural adjustment and exclusion of the infrastructure component from tax withholding.
- Implications for Other Telecom Operators: If unregulated, similar practices may emerge across the telecom industry, potentially leading to widespread reduction in tax collection.
- FBR’s Negligence: The Federal Board of Revenue (FBR) was criticized for its inaction and indifference to the taxpayer’s alert regarding reduced tax deductions. The FTO described this behavior as maladministration.
Following its review, the Federal Tax Ombudsman issued the following directives to FBR Members IR-Operations and Policy:
- Investigate the explanation provided by the telecom company and verify whether it aligns with the relevant tax laws.
- Ensure compliance within 45 days and submit a report detailing the findings.
- Prevent similar practices by monitoring other telecom companies for potential maladministrative tax adjustments.
Potential Impact of the FTO’s Order
1. Increased Scrutiny on Telecom Taxation
The ruling is expected to trigger enhanced monitoring of how telecom operators structure their billing components. By demanding transparency and adherence to tax laws, the FBR may introduce new regulations to curb similar practices.
2. Strengthening Taxpayer Rights
This case highlights the importance of taxpayer vigilance. Salaried individuals who rely on accurate tax deduction certificates can now raise concerns through proper legal channels like the FTO office.
3. Implications for Other Industries
Beyond telecom companies, other service-based industries may now be subjected to stricter scrutiny to ensure compliance with withholding tax regulations.
To avoid facing similar issues, taxpayers should adopt the following best practices:
1. Regularly Review Tax Deduction Certificates
Always cross-check the details of your annual tax deduction certificate and compare it with previous years’ deductions.
2. Report Discrepancies to FBR and FTO
If you notice unjustified tax reductions, immediately file a complaint with the Federal Board of Revenue (FBR). If the issue persists, escalate the matter to the Federal Tax Ombudsman (FTO).
3. Seek Professional Tax Assistance
Consult a tax professional or accountant to verify the accuracy of tax deduction certificates and ensure compliance with the Income Tax Ordinance, 2001.
The Federal Tax Ombudsman’s intervention in this case underscores the critical role of regulatory oversight in maintaining tax compliance. By holding telecom companies accountable, the FTO ensures that salaried individuals receive accurate tax deduction certificates, ultimately protecting taxpayer rights and strengthening the tax system.
The FBR must now take decisive action to prevent further instances of tax maladministration, ensuring a fair and transparent taxation process for all taxpayers.
 has directed the Federal Board of Revenue (FBR) to investigate telecom companies for issuing less tax deduction certificates to salaried individuals. Learn about the latest ruling, its impact, and taxpayer rights.){kind=link}