Bonuses received by corporate employees: SC dismisses FBR appeals for recovery of 30pc tax

ISLAMABAD: The Supreme Court has dismissed the Federal Board of Revenue’s appeals for recovery of 30 percent tax on bonuses received by corporate employees having taxable income of Rs1 million or more for raising funds for the internally-displaced persons from Swat, Wana, and Malakand Division.

A three-judge bench, headed by Chief Justice Umar Ata Bandial, and comprised Justice Qazi Faez Isa and Justice Syed Mansoor Ali Shah on Monday heard the appeals of the FBR and the private individuals against the Sindh High Court’s judgment.

The SHC on July 22, 2010, upheld the levy of 5 percent Internally Displaced Persons Tax (IDPT) and simultaneously, struck down 30 percent tax on bonuses received by corporate employees having taxable income of Rs1 million or more.

Justice Mansoor questioned as to what was the justification to impose 30 percent tax on the bonuses of the corporate sector employees. He said why there was discrimination to impose tax only on the income of the corporate sector getting Rs1 million income.

Justice Faez said why 30 percent tax was not imposed on lawyers who receive more than Rs1 million and more and also the businessmen. In Pakistan many persons’ income is more than Rs1 million, he added.

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Riaz Hussain Azam, representing the FBR, said 30 per cent tax was imposed only on the bonus. Justice Mansoor asked whether the bonus is not part of the income? He further inquired why a tax was imposed separately on the bonus.

Justice Faez said the court has no objection if the FBR imposes 90 per cent tax but there should be no discrimination. The chief justice said bonus is part of income.

Additional Attorney General said the government has the power to impose a tax, adding the tax was imposed on the corporate sector.

Justice Mansoor observed that companies give bonuses to its employees when it earns a profit. He asked the FBR counsel that it had not received tax from the company, but from the employees, adding the Court is unable to understand why an additional tax was imposed only on the corporate sector employees.

The government through the Finance Act, 2009, introduced a number of amendments to the Income Tax Ordinance, 2001. The IDPT had been imposed as income tax payable on the taxable income of Rs1 million or more and is to be levied at the rate of five per cent. It is a one-time levy and applicable only to the tax year 2009.

Similarly, the government had imposed tax at 30 percent on bonus paid or payable to corporate employees receiving salary income of Rs1 million or more, excluding bonus in the year.

The IDPT on bonus was also introduced by the government through the Finance Act 2009 but was chargeable for the tax year 2010. This IDPT on bonus is also a one-time levy.

The government imposed these levies for raising funds for the internally-displaced persons from Swat, Wana, and Malakand Division. However, this was challenged in the SHC by the corporate sector employees.

The SHC had upheld the five per cent tax on salary on persons earning Rs1 million or more, but struck down a 30 percent tax on bonus as IDPT on the ground of being discriminating.

Copyright Business Recorder, 2022