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ISLAMABAD: The Federal Tax Ombudsman (FTO) has uncovered a new form of suspicious activity involving Wateen Telecom Ltd, which has been issuing fewer tax deduction certificates to salaried individuals. This revelation raises concerns about potential tax mismanagement within the telecom sector.
The Federal Board of Revenue (FBR) was found to be unaware of this irregular practice. In response, the FTO has directed the FBR to conduct an investigation into Wateen Telecom Ltd’s pattern of issuing a reduced number of tax deduction certificates to employees.
Complaint Filed Against Wateen Telecom Ltd
A formal complaint was lodged against Wateen Telecom Ltd under Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000 (FTO Ordinance), citing the issuance of an inaccurate tax deduction certificate.
The complainant, a salaried individual, has been using telecom internet services for an extended period. Under the Income Tax Ordinance, of 2001, he has consistently received a tax deduction certificate reflecting a 15% deduction on the total amount paid to the company. However, despite his salary being deposited with the corporation, he did not receive a tax deduction certificate this year.
FBR’s Failure to Address the Complaint
The complainant repeatedly approached the FBR but received no resolution. Since a tax deduction certificate is required to file tax returns, the absence of this document has left the complainant frustrated.
In response to the complaint, Wateen Telecom Ltd stated that the reduction in tax deductions was due to an internal structural adjustment. The company clarified that they split the Internet Monthly Line Rent (MLR) into two components:
- Infrastructure (Infra)
- Internet (Internet)
Since the infrastructure component is exempt from withholding tax, this separation has resulted in a lower taxable amount, leading to a reduced total on tax deduction certificates for fiscal year 2024.
While Wateen Telecom Ltd has provided an explanation, the FTO has questioned the legality of this division. The company must cite specific tax legislation that permits the splitting of the internet monthly line rent and the exclusion of one part from tax withholding.
Concerns Over Industry-Wide Tax Avoidance
The FTO has warned that other telecom companies may adopt similar practices, potentially leading to widespread tax avoidance. The report further criticizes the FBR’s incompetence, highlighting that field formations have ignored taxpayer complaints regarding reduced tax deductions. The FTO has deemed this negligence as maladministration.
The FTO has instructed the FBR’s Members of IR-Operations and Policy to thoroughly review Wateen Telecom Ltd’s explanation, assess its compliance with applicable laws, and submit a report within 45 days.
This case underscores serious concerns about tax transparency in the telecom sector, urging authorities to take immediate action to prevent further financial discrepancies.
