Insurance business field workers: FTO for reconsidering rate of WHT on income

Federal Tax Ombudsman (FTO) has recommended the Federal Board of Revenue (FBR) to reconsider the rate of withholding tax (WHT) on the commission income of insurance business field workers. In an order issued here on Tuesday, FTO observed that charging WHT on income which is below taxable limit and placing such tax under Final tax Regime (FTR), being non-adjustable, is contrary to legal provisions of Income Tax law and the Constitution. The FBR should provide field workers of insurance business fair opportunity to represent their case in accordance with the principles of natural justice and report on the action within 45 days.
FTO order said that the complaint is against non allowance of expenditure on the commission receipts and imposition of withholding tax on field workers of State Life Insurance Corporation (SLIC). FTO stated that there is no denying the fact that taxing meagre amount of commission income of insurance agents is against the principle of justice as well as provisions of fundamental rights enshrined in the Constitution of Pakistan. Up to tax year 2005, the rate of withholding tax was 5 percent which was increased to 10 percent in 2006 and 12 percent in 2014. The spirit of income tax law is based on ability and capacity to pay tax. Those who have little ability to earn have no capacity to pay tax. Charging withholding tax on income which is below taxable limit and placing such tax under Final tax Regime (FTR), being non-adjustable, is contrary to legal provisions of Income Tax law and the Constitution as such a tax is discriminatory and confiscatory in nature.
During the hearing, the authorised representatives have also pointed out that they have approached the senior officers of Ministry of Commerce, the FBR and Ministry of Finance during the preceding years, but no heed was paid to their submissions. It would, therefore, be in the interest of justice that Chairman FBR/Secretary Revenue Division should consider the issue in a sympathetic manner to redress the grievance of the complainant by proposing appropriate amendment in law in accordance with the principles of justice.
The authorised representatives have also observed that the commission receipts of field workers of SLIC were being taxed by charging withholding tax without allowing expenditure on their petty and otherwise non taxable income. It has been claimed that previously rate of withholding tax on commission receipts of field workers, namely Sales Representative, Sales Officers and Sales Manager, was 5 percent and 50 percent expenditure was also allowed to them from their income, but through Finance Act 2006, the rate of withholding tax was enhanced to 10 percent which has further been enhanced to 12 percent through Finance Act, 2014, for tax year 2014. The ARs forcefully contended that the imposition of withholding tax on their petty income was not only discriminatory but it was unjust and against the principle of justice as well as provisions of fundamental rights granted in the Constitution of Pakistan.
The departmental representative claimed that income of insurance agents was being charged to withholding tax under Section 233 of the Income Tax Ordinance, 2001 and the FBR or its field formations were not authorised to reduce the rate of withholding tax or to exempt the income of insurance agents as the law has been passed by the Parliament and, therefore, there was no element of maladministration on the part of the FBR, FTO added.