ISLAMABAD: The Federal Board of Revenue (FBR) has found that many not-for-profit organisations (NPOs) have incorrectly reflected tax credit in their income tax returns.

The income of non-profit organisations, trusts or welfare institutions is allowed a tax credit equal to 100 percent of the tax payable subject to certain conditions. The estimated cost of exemption stood at Rs 21,127.83 million available to the NPOs during 2019-20.

The FBR's analysis of the tax credits claimed by the NPOs revealed that the tax credit claimed is equal to tax expenditure. Many not-for-profit organizations incorrectly reflected tax credit in their income tax returns. In these cases, income was declared as "exempt" under the exempt field of return instead of claiming credit in the right field designated for this tax credit. Hence, tax expenditure from these cases was not being reflected in the aggregate data culled from the income tax returns. To account for this anomaly, some of the cases were manually detected and their tax expenditure was added to the total tax expenditure figure for this clause. However, scrutiny of all such cases and manual addition was not possible in all cases. It is expected that actual figure of tax credit under section 100C may be 7-10 percent higher than what is reported, FBR added.

Copyright Business Recorder, 2020