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ISLAMABAD: Federal Tax Ombudsman (FTO) has declared that the Workers Welfare Fund (WWF) is neither a tax covered under Income Tax Ordinance, 2001 nor falls in the category of “other taxes”, i.e., sales tax, federal excise duty, customs, as it is a non-tax levy.

Therefore, the adjustment of a determined tax refund against non-tax Cess, i.e., WWF is patently illegal, departure from norm and discriminatory.

The FTO while deciding the case of M/s Wah Nobel Chemicals Limited has declared the Workers Welfare Fund (WWF) adjustment against the approved Income Tax refund amount as illegal.

Brief facts of the case are that the complainant, a public limited company and subsidiary of Pakistan Ordinance Factory, Wah filed refunds applications for various years 2013 to 2016; 2018 to 2020. After Taxpayers, repeated requests and a long wait, Large Taxpayer Office (LTO), Islamabad passed refund orders u/s 170(4) of the Income Tax Ordinance, amounting to Rs109.2 million.

A considerable time since passing the above mentioned orders elapsed but FBR has not released the payments to the Complainant. The complainant company approached FTO office for relief and it was complained that despite providing all supporting documents, no refund orders for Tax Years 2018 –2020 has been issued despite several requests to the senior officials, including the chairman FBR.

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While responding to FTO notices initially the Chief Commissioner-IR, LTO Islamabad informed that the refund orders for Tax Years 2013-2016 have been passed by LTO, Islamabad on 31.01.2020. Further processing for transfer of funds will be made by FBR.

The CCIR further reported that refund order for Tax Year 2020 has been issued on 18.02.2022. As for Tax Year 2018, it has been informed that the verification process has been completed and refund order will be issue expeditiously. For Tax Year 2019 it has been informed that the verification is under process.

The authorized representative (AR) while reacting to the above-mentioned comments of the respondent department informed that despite issuing of refund orders for Tax Years, 2013 to 2016, the refund amount has not been transferred to taxpayer’s account.

Second, in the refund order for Tax Year 2020 the DCIR has adjusted the WWF demand for the previous four years i.e. 2017 to 2020 without giving reasons for making such adjustments. All the orders have been passed without issuing notice or providing opportunity of hearing.

While deciding the case, FTO has observed that WWF is neither a tax covered under Income Tax Ordinance, 2001, nor falls in the category of “other taxes”, i.e., ST/FED/Customs. This is basically a non-tax levy which is only collected by tax authorities.

Thus adjustment of a determined tax refund against non-tax Cess, i.e., WWF is patently illegal, departure from norm and discriminatory. Furthermore, FBR had itself issued clear instructions vide C. No. 1(10) ST-LP & E/2020 66012-R dated 25th May, 2021, wherein all field formations were prohibited to adjust liabilities of WWF and WPPF against refunds of Income Tax.

LTO’s adjustment order is in defiance of FBR’s instructions on the subject. FTO has, accordingly, ordered FBR to :-( i) direct Chief CITRO FBR to ensure that the amounts of refund for Tax Year 2013to 2016 vide order dated 31.01.2022 are transferred to the taxpayers account immediately.

(ii) direct the Commissioner concerned to dispose of refund applications for Tax Years 2018 and 2019 strictly in accordance with law and after giving proper hearing;(iii) direct the concerned CIR to work out and arrange additional payment for delayed refund u/s 171(1) of the Ordinance for TYs 2013, 2014, 2015, 2016, and 2020.(iv) direct the Commissioner-IR, concerned to revisit the order u/s 170(4) for Tax Year 2020 passed on 18.03.2022 and subsequent illegal adjustment of refund against WWF;(v) the officer who has made illegal adjustment need to be counselled after obtaining his explanation.

Copyright Business Recorder, 2022


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Khalid aziz May 28, 2022 08:50am
Why can't a non tax levy be adjusted out of amount due to the taxpayer The FTOs observation is a travesty of justice FBR is the collecting agent of a levy due from a TP It has to be collected. So if amounts are due to a taxpayer and a non tax levy is recoverable Than FBR has every right to deduct the non tax levy from such amount FBR MUST CONTEST THIS AT ALL FORUMS
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Khalid Zaidi May 29, 2022 08:41am
I agree with the FTO order but we should understand that WWF calculations are based on taxable profits and if there is adjustment in taxable profits that will also lead to adjustment in WWF. If FBR is the collecting authority of WWF then it is fair that refund be given by the FBR.
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