Art/music students: FTO directs FBR not to charge 20-40pc WHT on honoraria

ISLAMABAD: The Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue (FBR) to stop the Punjab Council of Arts and Culture from deducting 20-40 percent tax (withholding tax on prize money) on honoraria/participation fees of art/music students.

In this regard, the FTO has issued instructions to the FBR to bar the Punjab Council of Arts and Culture from excessive deduction of withholding tax in the name of prize money.

According to the FTO’s order, several complaints were filed under Section 10(1) of the Federal Tax Ombudsman Ordinance (FTO Ordinance), addressing the issue of tax deductions under Section 156 of the Income Tax Ordinance, 2001, concerning payments received from the Punjab Council of Arts and Culture Lahore. These complaints, unified by identical concerns, have been collectively addressed in this consolidated order.

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The complainants, predominantly students of art and music across various academies and institutions, partake in events organized by the Punjab Council of Arts and Culture. In return for their participation, they receive compensation in the form of participation fees and remuneration.

However, the Punjab Council deducts withholding tax at rates of 20% for Filers and 40% for non-Filers, causing financial strain on the complainants, who assert their financial hardship due to these hefty deductions. The matter was brought to the attention of the Federal Tax

Ombudsman, with comments sought from the Secretary Revenue Division.

The Regional Tax Officer (RTO) contended that the payments made to the complainants constitute prize money,

subject to tax under Section 156 of the Income Tax Ordinance, 2001, with specified rates for Filers and non-Filers. The RTO further argued that no exemption limit applies to these payments.

On the other hand, the Punjab Council of Arts & Culture representative clarified that the payments are honoraria/participation fees, not prize money as interpreted by the tax authorities.

The Federal Tax Ombudsman examined the relevant provision of law, Section 156, which pertains to prizes and winnings. It was observed that the law specifically refers to prizes on prize bonds, winnings from raffles, lotteries, quizzes, and promotional sales, none of which align with the nature of payments made by the Punjab Council of Arts and Culture to the complainants.

The FTO findings concluded that the payments to the complainants resemble payments for services rendered, falling under Section 153(i)(b) of the Income Tax Ordinance, 2001. Thus, excessive taxation under section 156 was deemed unjustified and indicative of maladministration.

In light of the above, the Federal Tax Ombudsman has directed the Federal Board of Revenue (FBR) to issue instructions to the Punjab Council of Arts for refraining from tax deductions under Section 156 of the Ordinance, 2001. Furthermore, it is instructed to ensure that tax deductions, where applicable, are made under the relevant section, i.e., 153(1)(b) of the Income Tax Ordinance, 2001. Additionally, the withholding agent is instructed not to withhold tax when payments to an individual are less than Rs 30,000 in aggregate during a financial year.

This directive aims to alleviate the financial burden on the complainants, particularly low-income students, and rectify instances of excessive taxation through proper adherence to tax laws and regulations, the FTO added.

Copyright Business Recorder, 2024