FBR Can Recover Tax From Your Employer, Bank and Customers

It is your legal and social responsibility to pay taxes. Question is, whether FBR has right to recover tax from your employer, bank, landlord or your customers? This post answers this very question with specific reference to income tax law. 

Section 137 of Income Tax Ordinance 2001 (“ITO”) requires payment of following taxes to FBR:

• Tax payable at the time of filing annual income tax return
• Tax payable as a result of any assessment made by taxation authority

Above taxes are payable by a due date. If a taxpayer does not pay tax by the due date, the Commissioner has power to recover the same from certain other persons. Law was there, but FBR and taxpayers were facing issues regarding implementation of this provision.

To overcome difficulty, FBR has issued rules by inserting Chapter XVIA in Income Tax Rules, 2002 (through SRO 274(I)/2020 dt. 2^nd April 2020).

FBR can recover tax from your employer, bank, landlord and customers

Through these rules, FBR has clarified that recovery notice can be sent to the following persons (u/s 140) in addition to the taxpayer:

• A person who owes money to the taxpayer such as debtors, employer, tenant, etc;
• A person holding money on behalf of taxpayer such bank, national savings scheme, etc;
• A person who holds money on account of some other person for payment to taxpayer such as member of AOP or an agent, etc; or
• A person having authority of some other person to pay money to the taxpayer.

The Commissioner is required to give recovery notice to above persons on a prescribed Form (Rule 69).

Where the Commissioner has raised tax demand as a result of ex-parte order or rejection of estimate u/s 147(6), the Commissioner is required to obtain prior approval of Chief Commissioner.

If the taxpayer has preferred an appeal u/s 127 against the tax demand, which is still pending adjudication before the Commissioner (Appeals), the Commissioner shall issue recovery notice after obtaining prior approval from Chief Commissioner. This only applies where the taxpayer has not paid 10 pc the amount due before filing the appeal.

The Commissioner is required to also send a copy of the recovery notice to the defaulter (taxpayer) at his last known address. If money is held jointly, the Commissioner shall send notice to all joint-holders at their last known addresses.

Person to whom above notice is served e.g. employer, bank, debtor, etc, shall send the amount of tax to the Commissioner through pay order, demand draft, bank transfer or through cheque. Please note that this recovery can be made only to the extent of money owed to the taxpayer by such person. Person to whom recovery notice is served, shall be bound to make compliance. The Commissioner shall issue a receipt of the amount so received after recovery.

If a person does not comply with the recovery notice of the Commissioner, he shall be personally liable to pay the amount to the Commissioner.

In case of any question or dispute as a result of such recovery, the relevant Commissioner shall decide the matter within 30 days by order in writing.

Any person aggrieved by the orders of the Commissioner can prefer appeal to the Chief Commissioner, RTO or LTU, as the case may be.

If you have any questions, please do not hesitate to contact.