President declares income tax on low paid employees illegal

Islamabad: President of Pakistan has declared income tax on low paid employees illegal.

As per the details, the President of Islamic Republic of Pakistan has dismissed 81 appeals filed by the Federal Board of Revenue and upheld the orders of the Federal Tax Ombudsman to treat the income of low paid employees as salary income under section 12 of the Income Tax Ordinance ,2001 for taxation purposes.

Briefly, in the subject cases the complainants were temporary lecturers hired by Higher Education Department (HED), Khyber Pakhutnkhwa and posted at various colleges in KPK. The employer colleges were alleged to have been deducting excessive taxes at source from the meagre salaries paid to the complainants.

As a matter of concern for the complainants instead of treating them as salaried persons, to be treated u/s 149, they were rather subjected to unjust deductions u/s 153(i)(b) of Income tax ordinance, 2001 i.e. under head “Services Rendered” and that too treating the complainants as NON FILERs. This treatment was vehemently agitated by the subject 81 Complainants.

When confronted the Department defended the treatment stating that “College authority has hired the subject complainant on semester basis and the taxpayer providing services to the Govt Degree College Kaki Bannu in private capacity upon which tax is withheld u/s 153(1)(b) of the Income Tax Ordinance 2001 at the rate of 10% in case of filer and at the rate of 20% in case of non filer.

As the complainant is neither registered nor filed returns(s), of income therefore, tax deduction at the rate of 20% has rightly been made as per prescribed rates.

The Tax Ombudsman while disposing off the subject complaints of low paid employees, whose services were hired by Govt. Educational institutions in KPK, had recommended FBR to treat the payment against services rendered as salary income. FTO had further recommended FBR to  ensure that hired lecturers of Post Graduate College, Bannu or other such educational institutions are not burdened with excessive tax deductions at the withholding stage.

FBR should also issue necessary clarification for all withholding agents to safeguard such employees against excessive deductions.

President Arif Alvi, while disposing of the subject Appeals, has observed that the order of the learned FTO is based on valid justifications and sound legal footings.

Further the FBR vide its letter  dated 11th April ,2022 has already decided that the income of such employees hired under any of the forms i.e  regular, ad hoc or daily wages ,contingency would be treated as salary income under section 12 of the Income Tax Ordinance ,2001 .There remains no justification to treat the complainants differently .Thus, the representations of the FBR are liable to be rejected accordingly.

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