Payment of Tax Collection or Deduction: A Comprehensive Guide
Under the Income Tax Ordinance, 2001, and the Income Tax Rules, 2002, paying taxes collected or deducted is a critical responsibility for individuals and organizations. This blog provides a detailed guide on compliance with Section 160, Section 161, and related provisions. It includes examples and timelines to ensure clarity and full compliance.
Section 160: Payment of Tax Collected or Deducted
Key Provisions
Any tax collected under Division II, deducted under Division III, or collected/deducted under Chapter XII must be paid to the Commissioner.
The payment must be made within the prescribed time and manner.
Rules for Payment
Taxes collected or deducted must be credited to the Federal Government promptly.
Authorized modes include remittance to Government Treasury or deposit in specified branches of the State Bank or National Bank of Pakistan.
Example
Scenario: ABC Pvt. Ltd. collects withholding tax on a supplier’s payment on January 15.
Compliance: ABC must deposit the collected tax to the Federal Government within seven days from the week’s end, i.e., by January 22.
Key Points Covered
Tax collection and deduction
Section 160 compliance
Federal tax deposit timeline
Section 161: Failure to Pay Tax Collected or Deducted
Key Provisions
If a person fails to collect or deduct taxes or fails to pay collected taxes, they are personally liable for the tax amount.
Before recovery, the person is provided with an opportunity to be heard.
If the due tax has already been paid by the other party, recovery will not be made. However, the defaulting party will owe default surcharge at 12% per annum.
Example
Scenario: XYZ Corporation fails to deposit withholding tax of PKR 100,000 deducted on April 1.
Implication: XYZ will be liable to pay the amount along with a default surcharge of 12% if not deposited on time.
Recovery: The company may recover the amount from the taxpayer from whom it should have been deducted.
Important Notes
The Commissioner has the authority to amend recovery orders after necessary inquiries.
Amendments must follow a hearing opportunity for the defaulter.
Key Points Covered
Tax default surcharge
Section 161 penalties
Non-compliance with tax deduction
Income Tax Rules, 2002: Division III Payment Rules
Rule 43: Payment Timelines
Federal/Provincial Government: Payment must be made on the day of collection or deduction.
Others: Payment must be made:
Weekly: Within seven days from the end of the week for taxes deducted/collected domestically.
Remittance Abroad: Before remitting payments to non-residents.
Example
Scenario: DEF Ltd. collects tax on March 5.
Compliance for Domestic Payment: Deposit by March 12.
Compliance for Foreign Payment: Deposit before transferring funds abroad.
Key Points Covered
Rule 43 timelines
Tax payment process
Withholding tax remittance
FAQs
Section 160
What is Section 160? Section 160 mandates that any tax collected or deducted under specified provisions be paid to the Commissioner within the prescribed timeline.
Who must pay taxes collected or deducted? The entity or person responsible for collecting or deducting the tax must ensure payment to the Federal Government.
What happens if taxes are not paid on time? Late payment can result in penalties and default surcharges.
What is the prescribed timeline for payment? Taxes must generally be paid within seven days from the week’s end of collection or deduction.
Where should the payment be made? Payments should be deposited into the State Bank of Pakistan, National Bank, or Government Treasury.
Can taxes be paid in installments? No, taxes collected or deducted must be paid in full within the specified timeline.
What are the consequences of late payment? Late payments attract penalties and default surcharges as outlined in the Ordinance.
How does the Federal Government process these payments? Payments are credited to the relevant government accounts for allocation and utilization.
Can third parties handle tax payments? No, the responsibility lies with the person or entity collecting or deducting the tax.
Is payment proof mandatory? Yes, documentation of the payment is required for compliance.
What happens if tax records are misplaced? Reconciliation with the Commissioner may be required to rectify the situation.
How is payment tracked? Payments are tracked through receipts and official government records.
Can payments be adjusted later? Adjustments are possible only under specific circumstances outlined in the law.
What happens in case of overpayment? Overpayments may be refunded or adjusted against future liabilities.
What’s the difference between collected and deducted taxes? Collected taxes are taken from transactions, while deducted taxes are withheld from payments.
Section 161 FAQs
What is the penalty for failing to pay taxes? The defaulter is personally liable for the unpaid tax amount along with a default surcharge.
Can tax liability be transferred? No, the primary responsibility lies with the defaulter.
How is the default surcharge calculated? It is calculated at 12% per annum from the due date to the payment date.
What is the hearing process? The Commissioner provides the defaulter an opportunity to present their case before recovery proceedings.
Can tax be recovered from the liable party? Yes, the defaulting entity can recover the tax from the person liable for payment.
What happens if the tax was already paid by the other party? Recovery is waived, but the defaulter owes a default surcharge.
How does one appeal against a recovery order? Appeals can be filed with the appellate authority as per the Ordinance.
Are penalties fixed or variable? Penalties may vary based on the nature and extent of non-compliance.
Can recovery be made without notice? No, recovery proceedings require prior notice and hearing.
What’s the role of the Commissioner? The Commissioner oversees compliance, hearings, and recovery proceedings.
Is default surcharge negotiable? No, it is calculated as per the specified rate in the Ordinance.
How is liability determined? Liability is based on records of collection, deduction, and payment.
Can taxes be adjusted retroactively? Adjustments may be considered under exceptional circumstances.
What are common recovery mistakes? Errors in records, miscommunication, and delayed actions are common issues.
How to ensure compliance with Section 161? Regular audits and timely payments ensure compliance.
Rule 43 FAQs
What is Rule 43? Rule 43 governs the timelines for payment of taxes collected or deducted under the Ordinance.
Who must comply with Rule 43? All entities collecting or deducting taxes must comply with the specified timelines.
How are timelines defined? By the nature of the collection or deduction (e.g., weekly or before remittance abroad).
What happens if the timeline is missed? Late payment penalties and default surcharges apply.
Are there separate rules for remittance abroad? Yes, taxes must be paid before the remittance is made.
How are government deductions different? Federal and Provincial Government deductions must be deposited the same day.
Where can payments be deposited? Payments are deposited in the State Bank, National Bank, or Government Treasury.
Can payments be made electronically? Yes, authorized electronic payment methods can be used.
What’s the process for foreign remittances? Taxes are deducted and paid before transferring the funds abroad.
How are weekly payments calculated? Weekly payments are based on the collection or deduction during the preceding week.
What happens in case of discrepancies? Discrepancies must be reconciled with the Commissioner.
Can penalties be waived? Penalty waivers may be granted in exceptional cases.
How does Rule 43 interact with Section 160? Rule 43 provides the procedural framework for implementing Section 160.
What records must be kept for Rule 43 compliance? Detailed records of collections, deductions, and payments are mandatory.
How are refunds processed? Refunds are issued after verification of overpayment claims.
