The Federal Board of Revenue (FBR) failed to recover Rs. 20.561 billion in withholding tax from defaulting withholding agents during audits covering FY24 and FY25, according to an official audit report.
The report found that 681 withholding agents across 19 FBR field offices either failed to deduct withholding tax from payments made to suppliers, contractors, and service providers or deducted the required amount but did not deposit it into the national treasury within the legally prescribed timeframe.
Under Pakistan’s tax laws, withholding agents are responsible for deducting taxes at the source and ensuring that the collected amount is deposited with the government. The audit stated that the FBR was legally obligated to recover these unpaid taxes from the defaulting agents.
Rs. 20.56 Billion Remained Unrecovered
According to the audit findings, the FBR did not initiate recovery proceedings on time, resulting in an outstanding amount of Rs. 20.561 billion remaining unrecovered.
The audit observations were communicated to the tax authority between February and November 2025, highlighting the failure to enforce tax recovery despite identifying the irregularities.
The report emphasized that delays in initiating legal action contributed to the significant revenue shortfall and raised concerns over weaknesses in the tax collection process.
FBR Says Legal Action Has Started
Responding to the audit findings, the FBR stated that legal proceedings had been initiated to recover the outstanding amount from the defaulting withholding agents.
However, the audit noted that despite these assurances, no substantial progress had been reported by the time the audit report was finalized.
The Departmental Accounts Committee (DAC) also reviewed the matter during meetings held in July and December 2025 and January 2026.
During those meetings, the committee directed the FBR to expedite legal proceedings against the defaulters and submit a compliance report detailing the recovery efforts.
Despite these directives, auditors observed that the department had not provided any meaningful update regarding the recovery of the outstanding amount.
Repeated Audit Issue Raises Concerns
The audit report highlighted that this is not an isolated incident.
According to the report, similar irregularities have appeared consistently in audit reports over the past five years, covering FY21 to FY25.
The cumulative financial impact of these recurring cases has now reached Rs. 134.5 billion, indicating persistent weaknesses in tax enforcement and compliance mechanisms.
Auditors described the repeated failure to recover withholding taxes as a matter of serious concern, warning that continued delays could undermine government revenue collection efforts.
Recommendations to Prevent Future Losses
The audit recommended that the FBR accelerate legal action against defaulting withholding agents to recover the outstanding taxes without further delay.
It also urged the tax authority to strengthen its desk audit mechanism, improve monitoring systems, and enhance enforcement procedures to ensure withholding taxes are deducted and deposited in accordance with the law.
According to the report, stronger oversight and timely recovery actions are essential to prevent similar revenue losses in the future and improve Pakistan’s overall tax administration.
The findings come as the government continues efforts to increase tax revenues and improve fiscal discipline, making effective enforcement against tax defaulters increasingly important.
