Pension received from abroad: FTO directs FBR to clarify taxation procedure

ISLAMABAD: Federal Tax Ombudsman (FTO) Dr Asif Mahmood Jah, in a landmark order to facilitate pensioners, has issued directions to Member Inland Revenue-Policy Federal Board of Revenue (FBR) to issue specific clarification on the questions raised on taxation of pensions received from outside Pakistan in a foreign jurisdiction.

In a systemic issue-related complaint moved by a tax lawyer Waheed Shahzad Butt, the FTO held that non-issuance of specific clarification on queries raised by the complainant is a departure from established practice and is also found unreasonable which constitutes maladministration in terms of Section 2(3)(i)(a) and (b) of the FTO Ordinance. The FTO order stated, complaint was filed against IR Policy Wing, on alleged commission of maladministration and wastage of national exchequer, etc.

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The complainant submitted a request on November 8, 2022, to FBR to seek clarification regarding exemption available to “Pension” received by a taxpayer citizen of Pakistan under Clause (8), Part I of 2nd Schedule to the Income Tax Ordinance, 2001 on the following points (i) Whether any pension received by a Resident Taxpayer Citizen of Pakistan from a Former Foreign Employer (within Pakistan or Outside Pakistan) is totally exempt from income tax in Pakistan under Clause (8), irrespective of the quantum of Pension? (ii) Whether sources (utilized for purchase of assets/properties etc), out of Pension received by a Resident Taxpayer Citizen of PAKISTAN from a former Foreign Employer (within Pakistan or Outside Pakistan) is chargeable to income tax in Pakistan? (In case “yes”, kindly quote the relevant provision of ITO, 2001). (iii) Whether a Pension received by a Resident Taxpayer Citizen of PAKISTAN from a former Foreign Employer can be clubbed with taxable income (Salary) earned in Pakistan from another employer? [In case “yes”, kindly quote the relevant provision of ITO, 2001].

Further, the complainant also alleged that after a long silence of 155 days on the part of FBR, Policy officials, for not clarifying the simple matter, issued a ‘fairy tale stories’ which reflects nothing but extreme maladministration of justice, proved incompetency and blunt violation of fiscal laws. Instead of giving a specific reply, the Policy Wing of FBR chose to issue general guidelines regarding income, total income, and taxation of salary and allied remunerations.

It is found that the procedure adopted by the FBR is contrary to regular practice in such cases and this stock reply is also found unreasonable which created dissatisfaction to the complainant. The said lapse, therefore, constitutes maladministration. Non-issuance of specific clarification on queries raised by the complainant is a departure from established practice and is also found unreasonable which constitutes maladministration in terms of Section 2(3)(i)(a) and (b) of the FTO Ordinance. The FBR to direct Member-IR (Policy) to issue specific clarification to the questions raised by the complainant within 15 days: the FTO order added.

Copyright Business Recorder, 2023