Cos, AoPs and individuals: FTO warns FBR against ‘illegal’ collections in tribal areas

ISLAMABAD: The Federal Tax Ombudsman (FTO) has warned the Federal Board of Revenue (FBR) to refrain from illegal collections of income tax/withholding tax from individuals, Association of Persons (AoPs) and companies in tribal areas.

According to an order of the FTO issued against the Regional Tax Office (RTO) Peshawar, clauses (109A) and (110) of the Income Tax Ordinance, 2001 provide that deduction or collection of withholding tax shall not apply to an individual domiciled or company and Association of person resident in tribal areas. In the instant case, the complainant’s permanent address is of North Waziristan.

The fact of the case are that the complainant being domiciled of ex-Federally Administered Tribal Area (Fata) and posted as a medical doctor at District Headquarters Hospital Miranshah, claimed that he is not liable to pay income tax under the statutory provisions of the Income Tax Ordinance 2001, the FTO order said.

The RTO Peshawar responded that the tax from the salary of the complainant has been rightly deducted as he is a government employee, ie, the Government of Khyber-Pakhtunkhwa. The salary income of a person, irrespective of his place of posting, is taxable under the provisions of the Income Tax Ordinance 2001. Section 101 of the Income Tax Ordinance 2001 clearly states salary income shall be considered Pakistan source i.e. deemed to accrue or arise in Pakistan, if it is received from any employment exercised in Pakistan, wherever paid or it is paid by any of the federal, provisional or local government of Pakistan.

Non-issuance of refund: FTO directs FBR to pay compensation to taxpayer

The FTO’s order revealed that after the merger of the said areas in the KPK/Pakistan tax laws have been fully extended to the areas in question. However, as a gesture of goodwill, the legislation has granted a grace period, whereby, all income earned through taxable activity in the said areas by the individuals domiciled in merged Fata/Pata has been exempted through clauses 145(A), 109(A) and 110 of the Income Tax Ordinance 2001 for a specified period. The salary individuals who are Fata/Pata domiciled and serving in the said areas are also entitled to this concessionary regime as no specific exclusion has been provided under the law.

The department, however, could not produce any provision where section 101 of the Income Tax Ordinance 2001 is excluded from ambit of exemption granted by federal government under clause 145(A) of Part-I of Second Schedule of the Income Tax Ordinance 2001 or clause 109(A) or 110 of Part-I of the Second Schedule of the Income Tax Ordinance 2001. The intent of legislation promulgated through Income Tax Ordinance 2001 to grant relief to residents of tribal areas under clause 145(A) Part-of Second Schedule of the Income Tax Ordinance 2001 to grant exemption to residents of ex-Fata/Pata. Negation of claim of exemption without affording proper opportunity of hearing to complement tantamount to maladministration as defined under the FTO Ordinance.

The FTO has directed the Chief Commissioner RTO Peshawar to dispose of application of exemption and decide the case on merit within 15 days under the explicit provisions of the clauses 145(A), 109(A) and 110 of Part-I of Second Schedule of the Income Tax Ordinance 2001.

Copyright Business Recorder, 2022