The reformed tax units, including Large Taxpayer Units, are unclear about the criteria to be used for imposition of the Workers Welfare Fund (WWF) on the filers of income tax returns/statements.
The applicability of the Workers Welfare Fund (WWF) on the filers of income tax returns, having combined income comprising normal tax regime (NTR) and final tax regime (FTR), needs clarification.
It is learnt that the Large Taxpayer Units (LTU) at Karachi has written second letter to the FBR to clarify the applicability of the WWF on return filers. Earlier, it had requested the FBR to explain the applicability of the WWF on the petroleum companies. This query was limited to the exploration and production companies. The second letter of the LTU Karachi is related to general applicability of WWF to the income tax returns filers.
The FBR Legal Wing would issue the clarification on the applicability of the WWF on the return filers having combined income comprising normal tax regime (NTR) and final tax regime (FTR).
According to sources, Workers Welfare Fund is chargeable @ 2 percent on total income of Rs 500,000 or more by every industrial establishment in terms of Section 4 of WWF Ordinance, 1971. The word "total income" has been defined exclusively in clause (i) of Section 2 of WWF Ordinance, 1971 contents of which are reproduced below:-
2(i)] "total income" means - where Return of Income is required to be filed under this Ordinance, the profit (before taxation or provision for taxation) as per accounts or the declared income as per the return of income, whichever is higher; and where return of income is not required to be filed, the profit (before taxation or provision for taxation) as per account or four percent of the receipt as per the statement filed under section 115 of the Ordinance, whichever is higher]"
From the above legal status, it is patently clear that the legislature has laid down two criteria to qualify for levy of WWF. The first criterion is where return of income is filed comprising of all sorts of income including FTR; and the second criterion is where return of income is not required to be filed due to filing of statements u/s 115(4) of the Income Tax Ordinance, 2001.
In the first criterion, comparison is made with the accounting profit v/s declared income as per return whichever is higher. Whereas, in the second criterion comparison is made with the accounting profit v/s receipts as per statements filed u/s 115(4) multiplied by 4 percent whichever is higher, LTU Karachi said.
However, on the contrary, the Audit authorities in their "audit observations" interpreted the definition of total income for levy of WWF as under:
"total income means that where return of Income is required to be filed under this Ordinance (ie Income Tax Ordinance, 2001), the Profit (before taxation or provision for taxation) as per Accounts or the declared Income as per the return of Income filed u/s 114, or 4percent of the receipt as per the statement filed u/s 115 of the Income Tax Ordinance, 2001, whichever is higher."
The Large Taxpayer Unit (LTU) Karachi was of the view that the audit authorities have mixed the contents of two different clauses (i) & (ii) of Section 2(i) of WWF Ordinance, 1971 into one, which in fact creates an ambiguity.
The Large Taxpayer Units (LTU) Karachi stated that when a taxpayer has a combined income comprising of NTR and FTR income, he files return of income showing taxable income / (loss) against NTR income and simultaneously declares FTR receipts in the same return. In case of combined return of income, the taxpayer ignores FTR receipts and pays WWF on the taxable income/(loss) or accounting profit whichever is higher as described in sub-clause (i) of clause (i) of section 2 of Workers Welfare Fund (WWF) Ordinance, 1971.
However, the audit authorities on the other hand opined that even in the case return of income is filed or combined accounting profit is declared, FTR receipts be considered separately for levy of WWF to which the department disagrees. The department considers that WWF on FTR receipts can only be levied where statement u/s 115(4) is filed, instead of normal return of income as described in sub-clause (ii) of Clause (i) of Section 2 of WWF Ordinance, 1971.
Keeping in view the cited legal position, the FBR has been requested to clarify as to which treatment should be adopted to levy WWF in the situation narrated above, LTU Karachi added.
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