The Federal Board of Revenue (FBR) has uncovered a significant fraud involving withholding tax (WHT) evasion in the property sector in Punjab. Property registrars, revenue officers, and lawyers colluded to collect WHT on property transactions worth billions of rupees but failed to deposit the funds into the national exchequer.
An audit by the FBR’s Regional Tax Office (RTO) in Sargodha revealed that property registrars in Punjab had retained the deducted WHT on property transactions instead of transferring them to the designated FBR accounts. The auditors also discovered that the registrars had issued fake tax challans and applied lower WHT rates for non-filers, enabling them to evade detection.
The RTO has begun recovery proceedings and legal action against those involved, utilizing the enforcement provisions of the Income Tax Ordinance 2001. So far, over Rs388 million has been recovered from the defaulters.
The revelation of this WHT evasion scam suggests that similar efforts to recover evaded funds may be taking place in other cities by organized groups of property registrars. If the FBR can identify and address similar revenue leakage in WHT collection across its other Regional Tax Offices, it may surpass its revenue collection targets for the remaining months of the financial year 2023-24.
The collection of WHT on immovable properties is a significant contributor to the FBR’s direct tax revenue. Following substantial increases in WHT rates under sections 236C and 236K of the Income Tax Ordinance 2001 from July 1, 2023, the collection of WHT from property sales experienced a growth of approximately 340.5 percent during the 2022-23 fiscal year compared to the previous year.