Ministry of Law and Justice and Federal Board of Revenue opinions are divided over the assessment of income tax on the remuneration paid to the foreign consultants hired by the Law Division. Sources told Business Recorder on Friday that foreign consultants and FBR have differently interpreted the relevant sections of the Income Tax Ordinance 2001.
The Law Division has requested the FBR for issuing proper interpretation of the Income Tax Ordinance 2001 for accurate computation of income tax on the foreign consultants.
Details revealed that the Access to Justice Program Management Unit of Ministry of Law had hired the services of experts/ consultants for different positions from the open market by following ADB guidelines on selection of consultants. Their services are governed by the terms and conditions contained in the contract signed by the parties. The consultants are given monthly remuneration against the tasks falling under their terms of reference (TORs) and monthly activity sheets.
The broader TORs are agreed with the consultants at the time of appointment and then the same are translated into specific activities through monthly/quarterly work plans prepared by the consultants. Further, the consultants are given a lump sum package.
According to Law and Justice Division, the consultants had been paying income tax, under section 153(1)(b) of Income Tax Ordinance, 2001, at a uniform rate of 6% on their remuneration on the premise that their services are consultancies and not employment. In order to get clarification about the rate of income tax applicable to the consultants, a reference was made to FBR for interpretation purposes.
The concerned Commissioner, Income Tax clarified that "the consultants are employees of the organisation and receiving salary under certain terms and conditions mentioned in their respective TORs of the contract. According to Income Tax Ordinance 2001, payments made to these consultants are covered by the definition of "Salary" and liable to tax under Section 12(2) the head salary.
Consequent upon advice of the Commissioner of Income Tax, the department had advised the consultants to pay tax as per relevant provision of Ordinance 2001 as pointed out by the FBR.
Contrary to this, the consultants have taken exception to the advice on different grounds. Their version, inter alia, is that they are not employees and are consultants, therefore, their remuneration cannot be brought into ambit of "salary" and rate of tax applicable to the consultancy services, apply to their cases.
They are, further, of the view that they are given a lump sum package and no additional allowance or transport or medical facilities are extended to them, as are extended to the government employees, either regular or on contract.
Hence, they maintain that they cannot be equated with the government employees and their remuneration is not covered under the definition of "salary" and, resultantly, they are not liable to tax U/S 12(2) of the Ordinance.
In the above circumstances, the question of computation of income tax of the consultants and the rate of tax applicable to them is yet to be solved by examining the terms and conditions of the contract, considering version of the consultants and scrutinising the law/rules on the subject.
Therefore, the FBR should re-examine the issue by consulting Ministry of Law, Justice and Human Rights for issuance of a new clarification enabling the Division to settle the tax liability of the consultants.
Comments
Comments are closed.