Withholding Taxes in Pakistan: Why it is Important to Educate Yourself, and how can You get a refund on your paid Withholding Tax Money?

The word Withholding means “refusal to give something that is due or desired”. So, in this context of Tax, it becomes Withholding Tax which means “to intentionally deduct the tax which can be claimed and/or refunded later”. 

,For tax purposes “Withholding tax is deduction or collection of tax at source, which has generally been in the nature of an advance tax. It is an effective mechanism and important/timely source of revenue of FBR.”

The contribution of withholding tax is about 41% of total direct tax revenues collected throughout the entire country. 

Knowingly or unknowingly, everybody is paying Withholding taxes. Withholding Tax is deducted on multiple sources of your income/expenditure (cash flow) for example: Salary, Dividend, Interest, Vehicle (buy, sell, register, and transfer of ownership), Property (buy and sell), Phone Bill (Prepaid, Postpaid, and Landline), and other sources in the list.        

It is very important to understand the concept of Withholding Tax and believe me if you do understand, you will definitely save tens of thousands of rupees every year.

For you it can be more than hundred thousand rupees depending on your salary and spending you have made during the year.

How can I claim back my paid withholding tax amount?

Withholding tax, which is also sometimes referred to as Advance Income Tax or just Income Tax in bills and receipts, can be refunded back from the government at the end of year. So, the fact is that the government keeps collecting withholding tax from you in different bills and receipts you pay and via many other methods, then you can get it back at the end of year only if you fulfill certain conditions. Which includes paying annual tax or being in an income slot where income tax doesn’t apply to you. Along with the second condition which is to be a tax filer or in other words, timely filing your tax returns every year.

There is a very confusing and logical question at the same time that may be aroused in your mind, which is that “why does the government deduct  withholding taxes when at the end of the year the government has to return it?”. So, the answer to this question is very clear like ‘crystal’ which is that “the objective is to force the majority of the population to  file their income tax returns, and declare any tax paid or unpaid by them. In this case excess tax paid is refunded back by filing an online refund application in FBR portal and on acceptance by FBR that the refund amount is legitimate then the same is transferred to one’s account  in the form of bank transfer or cheque issued.” 

In the second case other than this, “those people who earn taxable income and the same is  disclosed in their income tax return  and also declare their paid withholding tax amount throughout the tax year, then the excess withholding tax amount could be adjusted into their annual income tax returns.”

How can I collect information to get a refund on my paid withholding tax amount?

You know that the tax year starts from the month of July and ends in the  month of June of the following year. So, you have to keep your eyes on the receipts and bills of any expenditure spent by you throughout the whole year. Lookout on the mention of withholding tax, or advance income tax and keep receipts and bills in your possession, then after that you could have evidence of the withholding tax paid by you during the whole year. You can produce it before the FBR to verify your paid withholding tax and later on clinch the tax refund.

Procedure through which I can get my withholding tax refund:

You need to fill a form by visiting the FBR’s IRIS Portal, where you will  file your application for refund along with evidences of deduction of withholding tax  So, after proper verification and submission of further requisite documents / information by you. .

It doesn’t matter whether you’re salaried or any other sources of income  intentionally if you’re not availing this money refund opportunity then consider yourself at the stake of affordable loss.