FBR considering charging adjustable WHT on school fees

The Federal Board of Revenue (FBR) is again examining a budget proposal to impose a 5 to 10 percent adjustable withholding tax on payment of heavy school fees in the upcoming budget (2013-14). Sources told Business Recorder on Friday that the FBR was analysing a proposal to impose some kind of tax on payment of school fee by the rich class operating out of the tax net.
The tax may be imposed on monthly school fee of Rs 10,000 or more and refund would be available on filing of income tax return. This is part of the FBR strategy to improve documentation on the basis of expenditures. It is being examined whether imposition of such levy would be feasible or not.
During last budget, the FBR also considered imposing 5 to 10 percent adjustable withholding tax on expenditure made by undocumented persons in case of electricity bills, purchase of vehicles, payment of school fees, marriage functions in hotels and marriage halls and travel by air. Last year, these proposals were also cleared by the Economic Advisory Council (EAC) during budget preparation exercise to impose adjustable withholding tax on certain kinds of expenditures made by undocumented persons belonging to rich class. At that time, the FBR's proposal was rejected by the Ministry of Finance.
A tax expert said that if the proposal has been finalised, and an amendment was needed in the Income Tax Ordinance 2001 through Finance Bill (2013-14). This withholding tax could be adjustable and anyone who would file income tax returns would be eligible to obtain refund of the same. However, those not filing their income tax returns would not be able to obtain refund.
The Board seemed to only target those persons earning huge incomes but not paying tax or filing their returns. For example, any private school charging Rs 10,000 or above fee would be subjected to 10 percent adjustable withholding tax. In case of filing returns, withholding tax would be refunded. However, the subject withholding tax should not be applicable on school fee below Rs 10,000 per month. Similarly, electricity bills above a certain amount may be subjected to adjustable withholding tax.
The rich persons spending huge amount on marriage functions in hotels and marriage halls should also be subjected to adjustable withholding tax. Under the proposed formula, 10 percent of the bill of hotel/marriage halls should be deducted as withholding tax. Similar kind of adjustable withholding tax should be applicable on the purchase of cars. The purchasers would be able to obtain refund of the withholding tax on filing of the income tax returns, tax expert added.