Income tax

President declares income tax on low-wage earners illegal

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

According to the details, the President of the Islamic Republic of Pakistan dismissed 81 appeals filed by the Federal Board of Revenue and upheld Federal Tax Ombudsman orders to treat income of low-paid employees as wage income under Section 12. income tax. Ordinance of 2001 for tax purposes.

Briefly, in the cases in question, the complainants were temporary lecturers hired by the Department of Higher Education (HED), Khyber Pakhutnkhwa and assigned to various KPK colleges. The employing colleges allegedly levied excessive withholding taxes on the meager salaries paid to the plaintiffs.

As a matter of concern for plaintiffs instead of treating them as employees, to be treated u/s 149, they were instead subjected to unfair inferences u/s 153(i)(b) of the Ordinance on the income tax, 2001, that is to say under the heading “Services rendered” and that too by treating the plaintiffs as NON FILERS. This treatment was vehemently agitated by the 81 plaintiffs in question.

When confronted, the Department defended the treatment stating that “the College authority hired the complainant in question on a semester basis and the taxpayer providing services to Govt Degree College Kaki Bannu in a private capacity on which the Tax is withheld u/s 153(1)(b) of the Income Tax Ordinance 2001 at the rate of 10% if filing and at the rate of 20% if not filing.

As the Complainant is neither registered nor filing tax returns, a tax deduction at the rate of 20% was properly made in accordance with the prescribed rates.

The tax ombudsman, while eliminating the subject of complaints from low-paid employees, whose services were hired by the government. KPK educational institutions had recommended that FBR treat payment for services rendered as salary income. FTO had further recommended FBR to ensure that professors hired from Post Graduate College, Bannu or other such educational institutions are not burdened with excessive tax deductions at the withholding tax stage. .

FBR should also issue the necessary clarifications for all withholding agents to protect those employees from excessive withholdings.

President Arif Alvi, while disposing of the subject of the appeals, observed that the order of the FTO scholar is based on valid justifications and solid legal foundations.

In addition, the FBR, in its letter dated April 11, 2022, has already decided that the income of these employees hired in one of the forms, i.e. regular, ad hoc or daily salary, will be treated as wage income under Section 12 of the Income Tax Ordinance. ,2001 . There is no justification for treating complainants differently . Thus, the FBR’s representations are likely to be dismissed accordingly.