FBR declares 34 banks as Synchronized Withholding Administration and Payment System (SWAPS) agents for withholding of i taxes

by marana 

19.06.2023

FBR declares 34 banks as Synchronized Withholding Administration and Payment System (SWAPS) agents for withholding taxes

The Federal Bureau of Revenue (FBR) has declared 34 banks as 'SWAPS' ​​agents (withholding agents) to deduct and monitor withholding taxes.

According to the FBR report submitted to the Federal Tax Ombudsman (FTO) to streamline the withholding tax collection and deduction mechanism to enable the introduction of a fully automated system called "Synchronized Withholding Administration and Payment System" (SWAPS) has been introduced under Section 164A of the Income Tax Ordinance 2001.

Withholding agents (SWAPS agents) are;

Al Baraka Bank (Pakistan) Limited, Allied Bank Limited, Askari Bank Limited, Bank Al-Falah Limited, Bank Al-Habib Limited, Bank Islamic Pakistan Limited, Bank of China Limited, city Bank, Deutsche Bank AG, Dubai Islamic Bank Limited, Faysal Bank Limited, First Women Bank Limited, Habib Bank Limited, Habib Metropolitan Bank Limited, Industrial and Commercial Bank of China, Industrial Development Bank of Pakistan Limited, JS Bank Limited, MCB Bank Limited, MCB Islamic Bank Limited, Meezan Bank Limited, National Bank of Pakistan, Punjab Provincial cooperative Bank Limited, Samba Bank Limited, SILK Bank Limited, Sindh Bank Limited, SME Bank Limited, Soneri Bank Limited, Standard Chartered Bank (Pakistan) Limited, Summit Bank Limited , Bank of Khyber, The Bank of Punjab, United Bank Limited, Zarai Targiati Bank Limited and State Bank of Pakistan.

The board's undertaking of new SWAPS and Business Process Re-engineering initiatives reinforces the FTO Own Motion's immediate investigation premise that there are systemic gaps and gaps in the prevailing withholding and payment tracking mechanism and that an integrated, automated response is needed. to bridge these gaps by strengthening legal and enforcement mechanisms and introducing digital regimes and portals to processes and systems for real-time feedback and response to all stakeholders, particularly the regulatory body, for timely redressal and remedial action.

The FBR report revealed that the board has taken new initiatives to install Synchronized Withholding Administration and Payment System (SWAPS). The board has already issued a notification regarding SWAP agents who are required to deduct and collect the tax and credit the same to the concerned commissioner through digital mode. They are also required to generate a SWAPS Payment Receipt (SPR).

In order to make the scheme effective, the Act contemplated that if the notified agents of SWAP do not join the board within the specified period, they will not be entitled to certain tax credits and exemptions under any provisions of the Income Tax Ordinance, 2001. it was notified that the above agent SWAPS shall be required to collect and deposit withholding taxes under all sections except section 151 through the SWAPS portal from a date to be notified by the Board separately.

Furthermore, it is announced that only 7 banks out of a total of 34 from sl. no. will be included in the pilot phase of software development and testing. 2,3,13,18,21,32 and State Bank of Pakistan.

It was found that the main section relating to banks, Section 151, was omitted from this phase for no apparent reason. In addition, the Board stated in its written comments that Function Specific Documents (FSD) and FSD software solution development will be conducted over the next one to two years and that the FSD RAAST team is currently reviewing the FSD EXCHANGE. It is also reported that the initial phase for the Section 153 payment is in the pilot testing phase which will start in June/July 2023. This position is contrary to the timetable set out in the SWAPS Notice issued in 2022, which clearly stated that the pilot project will start between October 2022 and December 2022.

The facts shared during the investigation show that there has been a significant time overrun and the pilot projects have not yet started despite the passage of more than 6 months. This change in goalposts and time targets will cause serious obstacles to the implementation of this project and in turn revenue could continue to suffer leakages and shortfalls. The Ministry should take cognizance of these serious deficiencies and ensure that the projects and the various phases of their implementation are completed within the prescribed timeframe so that an improved withholding tax monitoring system can be implemented at the earliest to ensure the rights of all stakeholders.

The FBR report revealed that visible improvements in withholding tax administration are planned, which includes insertion of system checks and checks at the time of PSID generation, verification of rates and status of ATL at the time of PSID generation and automated checks regarding exemption entitlement. These reforms are in the implementation phase and according to a conservative estimate, the same are expected to be implemented in the next 10 months. However, no basis for such a deadline was presented during the negotiations.

The reforms, once implemented, are expected to limit banks' ability to deduct ATL tax from non-ATL persons and also grant improper tax exemptions, thereby protecting said income. Thus, the initiation of short-term reforms along with the current API-based withholding statement system will serve as a better strategy for withholding tax collection, monitoring and auditing only if the reform process effectively monitors the completion of all tasks in the shortest possible time. However, any overrun in time will not only cause revenue leakage but also increase the cost of the reform project, FBR added.

In view of the FBR report, the FTO recommended to the FBR that SWAPS and their components including Functional Specific Documents (FSDs) and development of downstream software solutions be completed within a specific time frame instead of being open-ended to avoid time and cost overruns.

Business process redesign and linkage with IRIS, ATL and PSID should be fully integrated end-to-end without human interface to prevent any manipulation and manipulation of data.

A data analysis cell should be set up in the board to analyze and convert the voluminous data received from 31 No. 002210M/2022 banks into actionable information and forward it to field formations to recover lost revenue. Audit of withholding tax software and system audit of banks should be carried out regularly to check compliance with withholding tax provisions.

The withholding audit under section 161 should be separated from the amendment under section 122(5A) in order to effectively monitor and control the withholding tax deductions. The capacity of the proposed analytical cell at FBR headquarters should be strengthened in terms of HR and domain expertise to enable them to interpret the data matrices, analysis in the light of the legal framework available under the tax laws and accordingly the capacity of field units for system audit. The WHT software should be improved in terms of human resources and technical expertise, the FTO added.