The Federal Board of Revenue may revise the formula for deduction of income tax from salaried class - government, semi-government and private sector employees to improve revenue collection. Sources told Business Recorder on Saturday that salary is considered as one of the potential sources of revenue in the developed tax systems.
However, FBR collection figures revealed that a lot of work needs to be done by the income tax department. The tax deducted on account of salary is much less than the potential of these workers.
The FBR has decided that the formula of tax deduction from salaries should be examined according to the rules. In the cases of computerised organisations, a system audit should be conducted with the help of experts in the domain of information technology.
Moreover, the FBR would ensure expansion of outreach for improving income tax collection from salaried class, sources added. Sources said that the salary is chargeable to tax on the basis of what is actually received during a tax year.
This means that if the employer actually makes payment of salary of eleven months in a tax year, then the employee is liable to tax on the salary for eleven months. Similarly, if in the succeeding tax year the employee is paid salary for thirteen months he/she will be liable to pay tax on the salary for thirteen months.
An exception to the above receipt basis of taxation of salary is for the employees of private limited companies where the Commissioner has reasonable grounds to believe that payment of the salary was deferred for avoidance of tax. The arrears of salary are also liable to tax in the tax year of actual receipt subject to an option for a special treatment, sources added.
The value of perquisites and benefits provided by an employer are chargeable to tax except those, which are specifically exempted. As a general rule, the amount chargeable to tax is the fair market value determined at the time the perquisite or benefit is provided as reduced by any payment made to the employer for such perquisite or benefit by the employee.
However, the valuation of the perquisites and benefits for which specific provisions are made in the Income Tax Ordinance, 2001 and Income Tax Rules 2002, is determined otherwise.
About the employer's certificate, sources said that the employer is obliged to provide the employer's certificate in lieu of return of income in the prescribed form within sixty days from the end of the tax year. In case of discontinuation of employment before the end of the tax year, such certificate is to be issued within seven days. Where a certificate is lost, stolen or destroyed, one can request for a duplicate and the employer is obliged to provide the same.