KARACHI: President of the Islamic Republic of Pakistan has upheld the Federal Tax Ombudsman’s (FTO) decision to grant tax relief to thousands of students affiliated with the Punjab Council of Arts and Culture.
This decision addresses longstanding complaints about excessive tax deductions from payments made to artist participating in arts and cultural events.
The President, in his order, emphasized the legal correctness of the FTO’s decision, stating,
“The withholding tax is to be deducted under Section 153(1)(b) and not under Section 156 of the ordinance of 2001. In this view of the matter, the order of the Federal Tax Ombudsman is upheld. The representation is dismissed.”
The controversy began when hundreds of complaints were filed with the Federal Tax Ombudsman . These complaints, primarily from students of arts and music across various academies, addressed the withholding tax deductions from the compensation they received for participating in events organized by the Punjab Council of Arts and Culture, Lahore. The deductions, at rates of 20% for filers and 40% for non-filers, imposed a significant financial burden on the students, many of whom are from low-income backgrounds.
The Regional Tax Officer (RTO) had argued that these payments constituted prize money and were subject to taxation under Section 156 of the Income Tax Ordinance, 2001. However, the Punjab Council of Arts and Culture clarified that the payments were honoraria or participation fees, not prize money as suggested by the tax authorities.
Upon reviewing the relevant laws, the FTO concluded that Section 156, which pertains to prizes and winnings such as those from lotteries or raffles, did not apply to the payments in question. Instead, these payments were for services rendered and fell under Section 153(1)(b) of the Income Tax Ordinance, 2001. The FTO found that the excessive taxation under Section 156 was unjustified and a case of maladministration.
Following the FTO’s findings, instructions were issued to the Federal Board of Revenue (FBR) to prevent the Punjab Council from applying Section 156 inappropriately. Instead, tax deductions, where applicable, should be made under Section 153(1)(b), with no withholding of tax for payments below thirty thousand Rupees in aggregate during a financial year.
This ruling has provided much-needed relief to the students, ensuring that tax laws are applied correctly and fairly, particularly for those in financially vulnerable positions. The President’s dismissal of the Federal Board of Revenue’s representations further solidifies this decision, marking a win for the arts community in Punjab.