FBR Issues Tax Recovery Notices to Salaried Individuals

The Federal Board of Revenue (FBR) has reportedly begun issuing tax recovery notices to salaried individuals, alleging discrepancies in claimed income tax deductions. This move has raised concerns among taxpayers and legal experts, as it appears to shift the burden of tax discrepancies onto employees rather than their employers. The Karachi Tax Bar Association (KTBA) has strongly opposed these notices, citing legal and procedural shortcomings in FBR’s approach.

FBR’s Allegations Against Salaried Individuals

According to reports, hundreds of salaried employees have received tax notices questioning the legitimacy of their claimed tax deductions. These notices stem from FBR’s inability to verify deductions through its IRIS Management Information System (MIS) or recover withheld tax amounts from employers.

The issuance of these notices has triggered widespread frustration among taxpayers, particularly those who rely solely on employer-issued salary certificates to file their tax returns. The KTBA argues that such actions are unjustified, as employees do not directly control tax withholding and remittance to the FBR.

1. Lack of Legal Jurisdiction

The KTBA contends that FBR’s actions lack legal jurisdiction, citing Section 162 of the Income Tax Ordinance. This section allows tax officers to issue notices to employees only if their employers fail to deduct or collect income tax from their salaries under Section 149. However, in the current scenario, the employers have already deducted and remitted the taxes, making these notices legally questionable.

2. Violation of Rule 41 of the Income Tax Rules, 2002

Under Rule 41 of the Income Tax Rules, 2002, salaried individuals file their tax returns based on salary certificates issued by their employers. Since the employer acts as the withholding agent, any discrepancies in tax deductions should be addressed to the employer, not the employee. By targeting individual employees, the FBR is shifting responsibility from withholding agents to taxpayers, causing undue stress and legal complications.

3. Highest Tax Rate Without Relief

Salaried individuals already bear one of the highest tax rates in the country. Unlike businesses and other entities, employees have minimal avenues for tax deductions, making the burden heavier. The recent notices add further financial and emotional stress to an already overtaxed segment of the population.

KTBA’s Response to FBR’s Notices

The Karachi Tax Bar Association (KTBA) has strongly opposed the issuance of these tax recovery notices. The association has written to the Member IR Operations, urging immediate withdrawal of these notices and seeking clarification on the legal grounds behind them.

The KTBA’s main arguments include:

• Employers are responsible for withholding and depositing income tax, not employees.
• FBR lacks legal jurisdiction to demand tax recovery from employees when deductions have already been made.
• Notices cause undue harassment to salaried individuals who have complied with tax filing requirements.
• Tax authorities should address discrepancies with employers, not individuals.

KTBA has requested FBR to instruct its field formations in Karachi to stop issuing these notices and follow the legal framework while conducting tax assessments.

Potential consequence for Salaried Individuals

1. Increased Compliance Burden

If these notices are not withdrawn, salaried individuals may have to engage tax consultants or legal experts to contest them, leading to additional expenses and administrative hassles.

2. Risk of Double Taxation

Since taxes are already deducted at the source by employers, demanding additional payments from employees could lead to double taxation. This violates fundamental tax principles and creates unnecessary legal disputes.

3. Negative Impact on Taxpayer Confidence

Such actions by the FBR can discourage voluntary tax compliance. If taxpayers feel they are being unfairly targeted, they may resort to alternative methods to minimize their taxable income, thereby reducing overall tax revenue collection.

Steps Salaried Individuals Should Take

If you have received a tax notice from the FBR, here are some immediate steps to follow:

1. Verify Your Tax Return: Cross-check your filed tax return with the salary certificate issued by your employer.
2. Consult a Tax Expert: Seek professional guidance from a tax lawyer or consultant to understand your legal position.
3. Respond to the Notice Promptly: If required, submit a written explanation to the FBR detailing the deductions and attaching supporting documents.
4. Engage Your Employer: Inform your HR or finance department to confirm that the correct tax deductions were made and remitted.
5. Raise the Issue with KTBA or Other Tax Associations: If you believe the notice is unjustified, approach KTBA or similar organizations to seek collective legal action.

The FBR’s decision to issue tax recovery notices to salaried individuals has raised serious legal and procedural concerns. The KTBA’s opposition highlights the unjust burden placed on employees, who rely on employer-provided salary certificates for tax filing. The demand for immediate withdrawal of these notices is justified, as any discrepancies should be addressed at the employer level rather than penalizing individual taxpayers.

Taxpayers must remain vigilant, seek professional advice, and advocate for fair taxation policies. If these notices are not addressed properly, they could set a harmful precedent for future tax enforcement actions.