Withholding Tax Regime is a global phenomenon and in Pakistan the major source of the Federal revenue collected on national level. The collection as well as dependence on Withholding Taxes is on the rise over the years. Out of total Direct Taxes collection of Rs, 740(b) for financial year 2012 Rs, 422(b) with percentage share of 57% came from various Withholding Taxes, which are characterized by their adjustable and presumptive nature. Withholding Taxes regime in one or the other way is part of tax system ever since imposition of direct taxes by the governments and taxpayers on two scores;
- To the government, provides revenue regularly throughout the year for its expenditure and operations.
- To the taxpayers, provides an opportunity to discharge their obligations in manageable installments.
In recent years, globalization has forced many countries to alter their economies to harmonize tax polices and alignment thereof with new trade and investment policies embodied in the free trade agreements. The concept of “Hang Together” is more relevant today than ever before. Countries can neither close their borders nor their economies. Tax policies can not be isolated from the international economies either. In view of such competitive environment there was a need to have an organization to monitor and manage the system of Withholding Tax Regime, therefore the Directorate General of Withholding Taxes was created through Finance Act of 2008 under section 230A of the Income Tax Ordinance 2001.