WWF’s liabilities can’t be adjusted against refunds: FBR decision to have adverse effects on corporate sector: ICAP

ISLAMABAD: The Federal Board of Revenue’s decision that the Workers Welfare Fund’s liabilities cannot be adjusted against income tax refunds would have adverse implications on the corporate sector, according to an ICAP official.

Asif S Kasbati, the ICAP Fiscal Laws Committee Member explained to Business Recorder that the WWF liabilities cannot be adjusted against income tax refunds as the FBR vide a circular letter dated 28 March 2022 has rescinded the FBR’s earlier letter dated 17 February 2000, effectively after 12 long years.

This will have highly adverse implications on the corporate sector.

Kasbati stated that the new FBR Letter dated March 28, 2022 has been issued which is in principle the same as the earlier FBR letter dated 25 May 2021. However, in 2021 letter, the earlier letter dated 17 February 2000 was not referred. In the letter dated 28 March 2022, the same has now been referred. Hence, this is one of the reasons for the two letters of 2021 and 2022 on the almost same issue.

The highly adverse implications of the FBR letter dated March 28, 2022 in detailed context with reference to earlier FBR Letter dated 25 May 2021, Kasbati, the PBC Legal Committee Member, elaborated the FBR letter as follows: (i) In the FBR vide Letter dated 25 May 2021 had directed to all the chief commissioners that as per 170(3)(a) of the Income Tax Ordinance (ITO), refund can only be adjusted against any other tax and since WWF and Workers’ Profit Participation Fund (WPPF) are not classified as tax, these cannot be adjusted against a tax liability or credit.

The FBR had further stated that the income tax returns are filed voluntarily; however, reportedly some taxpayers probably adjusted WWF and WPPF against available tax credits. As the ITO does not allow for adjustment of WWF/WPPF against tax credits, such adjustments are detected during audit and be taken as part of audit exercise and detection and efforts to get correct declaration i.e. enforcement-related activities.

Moreover, to speed up improvements in tax declarations, field formations were advised by the FBR to ensure that payment of the WWF and WPPF is not skipped through adjustment against income tax refunds. In case of any lapse, further action may be initiated under the law.

Historically, he stated that the FBR vide a letter dated 17 February 2000 had allowed the adjustment of income tax refunds against the liability of WWF and WPPF since the collection of WWF (and the leftover WPPF amount) is also the Tax Department’s responsibility as per the FBR.

Kasbati opined that the FBR has ignored section 170(3)(c) read with section 170(4) specifying that Income Tax be refunded to the taxpayer within 60 days of receipt of a refund application; while as per section 120(1)(b), the return filed is deemed order. When the corporate taxpayers fail to get the refund on the timely basis even after waiting for over a year, taxpayer have no choice to adjust WWF and WPPF left over WPPF amount against Income Tax refund.

The non-adjustment WWF and WPPF matter may again land into Court as Income Tax, WWF; WPPF are being dealt with by the FBR to the extent of at least trans-province entities, as several entities have adjusted/will adjust WWF and WPPF leftover amount too against income tax refunds, Kasbati concluded.

Copyright Business Recorder, 2022