Director General (WHT)

Introduction

Withholding Tax Regime is a global phenomenon and in Pakistan the major source of the Federal revenue collected
on national level. The collection as well as dependence on Withholding Taxes is on the rise over the years. Out of
total Direct Taxes collection of Rs, 740(b) for financial year 2012 Rs, 422(b) with percentage share of 57% came from
various Withholding Taxes, which are characterized by their adjustable and presumptive nature. Withholding Taxes
regime in one or the other way is part of tax system ever since imposition of direct taxes by the governments and
taxpayers on two scores;

To the government, provides revenue regularly throughout the year for its expenditure and
operations.

To the taxpayers, provides an opportunity to discharge their obligations in manageable installments.

In recent years, globalization has forced many countries to alter their economies to harmonize tax polices and
alignment thereof with new trade and investment policies embodied in the free trade agreements. The concept of
Hang Together is more relevant today than ever before. Countries can neither close their borders nor their
economies. Tax policies can not be isolated from the international economies either. In view of such competitive
environment there was a need to have an organization to monitor and manage the system of Withholding Tax
Regime, therefore the Directorate General of Withholding Taxes was created through Finance Act of 2008 under
section 230A of the Income Tax Ordinance 2001.

Withholding Taxes in Pakistan

INCOME TAX

Withholding is an act of deduction or collection of tax at source, which has generally been in the nature of an
advance tax payment. It is an effective mechanism and important/timely source of revenue. Their contribution is
about 41 percent of total direct tax revenues. Increase from Rs.5(b) in 1991 to above Rs 422(b) in 2012 speaks of
exponential growth and consequential heavy reliance on withholding taxes in Pakistan.
Under the repealed Income Tax Act, 1922, tax was deducted from two main sources of income; namely, salaries
and interest on securities. Over the period of time, Withholding Tax net was extended, by steadily introducing
different Provisions in the Tax Laws. The repealed Income Tax Ordinance, 1979, brought in all the provisions of the
Income Tax Act, 1922. However, in the 1990s, withholding tax net was expanded extensively by providing for
withholding tax on a wider variety of transactions and making most of them presumptive. Provisions of the Income
Tax Ordinance, 2001, are more or less the same, except for a few changes and additions. Important withholding
provisions relate to salary, imports, exports, commission and brokerage, dividend, contracts, profit on debt, utilities,
vehicles tax, stock exchange-related provisions and non-residents, etc., with varying rates.

SALES TAX
Sales Tax Act of 1990 also provides for mechanism of Withholding. Vide SRO No. 660(1)/2007 dated 30th June
2007 special procedure under the title of Sales Tax special procedure (Withholding Tax) Rules 2007, was
introduced. Though within the Sales Tax structure share of Withholding Tax is quite minor and its scope is limited
only to five types of Withholding Agents. But still there is further room for broadening its base.