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Railway Vending Contractor's Complaint Upheld for Illegal Withholding Tax Recovery --- Federal Tax Ombudsman

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Railway Vending Contractor's Complaint Upheld for Illegal Withholding Tax Recovery --- Federal Tax Ombudsman

In a recent development under the Federal Tax Ombudsman Ordinance, 2000, a complaint was successfully filed against the alleged illegal excess recovery of withholding income tax from a railway vending contractor. The complaint, lodged under Section 10(1) of the FTO Ordinance, centered on the purported imposition of withholding income tax at rates ranging from 10% to 15%, in contravention of the statutory provision mandating a 5% withholding tax rate under Section 236A of the Income Tax Ordinance 2001.

The complainant, an individual Railway Vending Contractor operating within Pakistan Railways' Sukkur Division, raised concerns regarding the withholding tax discrepancies, asserting compliance with tax regulations as an active taxpayer in the Federal Board of Revenue (FBR). Notably, the vending contractor acquired stalls through open auction at Rohri Railway Station.

Following due process, the complaint was referred to the Secretary, Revenue Division, for examination and comments, as per the FTO Ordinance and the Federal Ombudsmen Institutional Reforms Act, 2013. The response from the Chief Commissioner, RTO Sukkur, highlighted the prevailing tax rate of 5% for movable property sold through auction of train management services by Pakistan Railways, based on the updated WHT rate card.

Upon hearing arguments and examining records, it became evident that the complainant, as an active taxpayer and Railway Vending Contractor, was subjected to an erroneous advance tax rate of 10% to 15%. However, the applicable rate as per Section 236A of the Ordinance, especially concerning auctioned train management services, stood at 5%, as reaffirmed by the Finance Act 2023.

Section 236A explicitly mandates the collection of advance tax at the time of sale by auction, with the applicable rate set at 5% for certain transactions, including the auction of train management services by Pakistan Railway. This provision, as per the Finance Act 2023, came into effect from 01.07.2023, necessitating adherence to the revised tax rate for subsequent payments.

Consequently, the recommendations put forth included directives to the FBR for instructing the concerned authorities to collect withholding tax at the amended rate of 5% from 01.07.2023 onwards for sale by auction of train management services, with a stipulated compliance report deadline of 30 days.

Furthermore, the findings and recommendations drawn from a similar case underscored the applicability of the aforementioned conclusions to the instant complaint, ensuring uniformity in addressing identical tax-related grievances.

This ruling serves as a significant precedent in upholding taxpayer rights and ensuring adherence to statutory tax regulations, particularly concerning withholding tax rates on auctioned services within the railway sector.