ISLAMABAD: PSX Stockbrokers Association has approached Federal Board of Revenue (FBR) Chairman Tariq Pasha against seizure of bank accounts of brokers having funds of their clients, creating panic among the brokers community.

In a communication of Ghulam Mujtaba Sakarwala, general secretary of the association to the FBR Chairman Friday, the association has made a presentation on the maladministration in monitoring of withholding tax practice of creating bogus demand and seizure of bank accounts despite refunds intimation.

The association alleged that in the presence of monthly and annual statements u/s 165/149 of the Income Tax Ordinance, 2001 monitoring of withholding tax (WHT) ought to be a simple affair but, the concerned assistant/deputy commissioner Inland Revenue, Enforcement and Collection, Unit-I, RTO, (Corporate) Karachi, working under CIR Zone I, CRTO, Karachi, has made the whole exercise extremely difficult and cumbersome for stock brokers.

Stock brokers’ members have reported that during the course of audit the concerned (AC / DCIR) neither examines statements u/s 165/149 nor pays any attention to volumes of details obtained from them. Instead of quoting instances, where a particular employee had been paid taxable salary without deduction of tax or any expense attracting deduction was incurred without deduction, the concerned officer, in his show cause notices, picks up gross figures from profit & loss account, applies hypothetical rates of tax deduction and confronts the tax payers with astronomical figures of tax not deducted.

The association said that now instead of adjusting the “arbitrarily” created demand against the already determined refunds, the concerned officer in the very first stance seizes all the bank accounts of our members. While doing this, even bank accounts reserved by law for keeping “Funds of the Clients only” are not spared.

The association claimed that the extreme and illegal action of the tax officer brings the brokerage house close to ruination. Although the ordinance allows a tax payer to pay 25% of the tax demanded and go in first appeal, yet concerned DCIR took away the whole amount from the bank.

The nature of brokerage business is very special. Brokers cannot keep any money out of bank. All business activities are fully documented and recorded to the extent of nanoseconds. Laws applicable to business demand that the money belonging to clients must be kept in separate bank accounts marked by the bank as “Client Account.” The FBR needs to issue special instructions to the field officers that the money lying in such accounts may not be treated as money belonging to the brokerage house.

The association has demanded of the FBR that the seizure of bank accounts despite availability of huge refunds for adjustment of demand is the height of maladministration. Kindly hold an enquiry into the matter.

Secondly, suitable instructions may be issued to the field officers that the bank accounts in the name of the brokerage house but titled as “client account” may not be seized for recovery of “tax demand” against the brokerage house because the funds in such accounts do not belong to the brokerage house. (The fact may be verified from the APEX Regulator of the Brokerage Houses - SECP), the association said.

Thirdly, to make field officers to apply their mind to the statements u/s 165 / 149 and the details obtained from the tax payer, suitable instructions may be issued. To meet the ends of justice and fair play the field officers may be bound to confront stock brokers with details of employees that have been paid taxable salaries without deduction of tax, and details of expenses, attracting WHT, but incurred without deduction of tax, before drawing an adverse inference.

The association pointed out that the item 15 of the table given u/s 182 prescribes penalty for failure to collect or deduct tax under the ordinance and its deposit as required u/s 160. For default of Re. 1 penalty to be levied is Rs 25,000 or 10 percent, which ever is higher. Suitable instructions require to be issued u/s 183 to rationalize the penalty. It is unfair and cumbersome for the compliant tax payers, the association said.