Non-profit organisations, trusts or welfare institutions may be charged to tax by the Federal Board of Revenue (FBR) if they do not fulfil certain conditions like filing of returns/withholding tax statements for the immediately preceding tax year and tax required to be deducted or collected has been paid in federal treasury.
Experts told Business Recorder on Sunday that the recently announced Finance Bill 2014 by the present government in consultation with the tax managers is a good step towards right direction of documentation of economy. Non-profit organizations, trusts or welfare institutions, may be taxed, however, they shall be allowed a tax credit equal to one hundred per cent (100%) of the tax payable, including minimum tax and final taxes payable under any of the provisions of Income Tax Ordinance, 2001, subject to the conditions, return has been filed, tax required to be deducted or collected has been deducted or collected and paid and withholding tax statements for the immediately preceding tax year have been filed.
Finance Bill 2014 proposed a new regime for Non-profit organizations, trusts or welfare institutions, be stipulated in law where the exemption of Non-profit organizations, trusts or welfare institutions, be eliminated and instead one hundred per cents (100%) tax credit be allowed subject to filing of Return, withholding obligations and complete Accounts. This will result in better enforcement of withholding tax provisions and documentation of economy.
At present, Income of Non Profit Organizations, trusts, welfare institutions, universities/educational institutions, religious and charitable institutions were exempted from tax by virtue of clauses (58), (58A), (59) & (60) of Part I of Second Schedule to the Income Tax Ordinance, 2001. The Finance Bill, 2014 proposes to withdraw the exemption by omitting the clauses (58), (58A), (59) & (60). However, it is proposed to allow tax credit equal to 100% of the tax payable including minimum tax and final taxes payable under the Income Tax Ordinance, 2001 to Non Profit Organizations, trusts, welfare institutions, universities/educational institutions, religious and charitable institutions, subject to the fulfilment of the following conditions:
1 Income tax return has been filed;
2 Tax required to be deducted / collected has been deducted / collected and paid and
3 Withholding tax statements for the immediately preceding tax year have been filed.
The proposed insertion through Finance Bill, 2014 may create a strong documentation atmosphere in one of the biggest sector of economy like Non Profit Organizations, trusts, welfare institutions, universities/educational institutions, religious and charitable institutions. The FBR may refuse to allow tax credit in case of short/non-deduction of tax on any payment attracting withholding tax provisions.
Newly inserted section 100C vide Finance Bill 2014 reads as under:
"100C. Tax credit for certain persons.- (1) Non-profit organizations, trusts or welfare institutions, as mentioned in sub-section (2) shall be allowed a tax credit equal to one hundred per cent of the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, subject to the following conditions, namely:-
(a) return has been filed;
(b) tax required to be deducted or collected has been deducted or collected and paid; and
(c) withholding tax statements for the immediately preceding tax year have been filed.
(2) Persons eligible for tax credit under this section include-
(a) any income of a trust or welfare institution or non-profit organization from donations, voluntary contributions, subscriptions, house property, investments in the securities of the Federal Government and so much of the income chargeable under the head "income from business" as is expended in Pakistan for the purposes of carrying out welfare activities:
Provided that in the case of income under the head "income from business", the exemption in respect of income under the said head shall not exceed an amount which bears to the income, under the said head, the same proportion as the said amount bears to the aggregate of the incomes from the aforesaid sources of income.
(b) a trust administered under a scheme approved by the Federal Government in this behalf and established in Pakistan exclusively for the purposes of carrying out such activities as are for the benefit and welfare of-
(i) ex-servicemen and serving personnel, including civilian employees of the Armed Forces, and their dependents; or
(ii) ex-employees and serving personnel of the Federal Government or a Provincial Government and their dependents, where the said trust is administered by a committee nominated by the Federal Government or, as the case may be, a Provincial Government;
(c) a trust or welfare institution or non-profit organization approved by Chief Commissioner for the purposes of this sub-clause;
(d) income of a university or other educational institution being run by a non-profit organization existing solely for educational purposes and not for purposes of profit;
(e) any income which is derived from investments in securities of the Federal Government, profit on debt from scheduled banks, grant received from Federal Government or Provincial Government or District Governments, foreign grants and house property held under trust or other legal obligations wholly, or in part only, for religious or charitable purposes and is actually applied or finally set apart for application thereto:
Provided that nothing in this clause shall apply to so much of the income as is not expended within Pakistan:
Provided further that if any sum out of the amount so set apart is expended outside Pakistan, it shall be included in the total income of the tax year in which it is so expended or of the year in which it was set apart, whichever is the greater, and the provisions of section 122 shall not apply to any assessment made or to be made in 88 pursuance of this proviso.
Explanation.- Notwithstanding anything contained in the Mussalman Wakf Validating Act, 1913 (VI of 1913), or any other law for the time being in force or in the instrument relating to the trust or the institution, if any amount is set apart, expended or disbursed for the maintenance and support wholly or partially of the family, children or descendents of the author of the trust or the donor or, the maker of the institution or for his own maintenance and support during his life time or payment to himself or his family, children, relations or descendents or for the payment of his or their debts out of the income from house property dedicated, or if any expenditure is made other than for charitable purposes, in each case such expenditure, provision, setting apart, payment or disbursement shall not be deemed, for the purposes of this clause, to be for religious or charitable purposes; or
(f) any income of a religious or charitable institution derived from voluntary contributions applicable solely to religious or charitable purposes of the institution:
Provided that nothing contained in this clause shall apply to the income of a private religious trust which does not ensure for the benefit of the public."
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