KARACHI, May 24: The Federal Board of Revenue (FBR) has initiated a major drive to recover billions of rupees in withholding tax from banks, official sources said on Tuesday.

The banking companies have been served with notices for recovery of huge amount of withholding tax collected but not deposited in the national exchequer, sources added.

In other cases, banks were not detecting withholding tax and under some other heads payments were not being made, revealed findings of a recent inquiry by the Large Taxpayers Unit (LTU) Karachi about withholding tax.

FBR chairman Salman Siddique had earlier this year stressed on strict monitoring and to ensure that the withholding tax collected by the banks is deposited in the national kitty. LTU Karachi mostly handles banking companies and has initiated strict monitoring of withholding tax.

Sources said an estimated amount of Rs25 to Rs30 billion is involved in withholding tax discrepancies which include deduction and collection of tax under Section, 231-A, 2360B, Section 151 and Section 149 of Income Tax Ordinance.

The initiative taken by the LTU has reportedly resulted in 45 per cent improvement in collection because April and May figures are much higher.

The Karachi LTU is the largest field office of the FBR and up to April 2011 it collected Rs430 billion and is now targeting to close the current fiscal on June 30 on a collection of Rs543 billion, sources said.

The notices issued to banks involve deduction of withholding tax under section 149 on salaries paid to employees at rates, ranging from 5 to 20 per cent as per income tax slabs.

The banks are supposed to deduct withholding tax under section 231-A at 0.3 per cent on cash transactions above Rs25,000 and 0.3 per cent on any investment made through cash.

LTU sources said that banks have to deduct withholding tax under section 151 on interest paid to account holders or certificates and savings. Above all the banks under the law have to deduct withholding tax at 10 per cent on dividend paid to shareholders.

However, LTU sources said that ever since the monitoring of withholding tax is being done banks have started regularly deducting withholding tax from payments made on different heads.

It has also been learnt by the LTU that bank branches in rural areas having no on-line facility do not provide information to their head offices regarding withholding tax deductions.

This creates lot of discrepancies and due collection and deduction of withholding tax is not done, sources added.