Legal advisors/consultants of the Federal Board of Revenue (FBR) have strongly recommended to the tax authorities to obtain legal opinion of the Law and Justice Division for proper collection of the Workers' Welfare Fund (WWF) by persons liable to pay the levy, particularly those deriving income from fixed/final tax regime.
Sources told Business Recorder here on Saturday that Workers' Welfare Fund levied under Workers Welfare Fund Ordinance, 1971 is payable by every "industrial establishment" as defined in the said Ordinance. In addition, by virtue of amendment made through Finance Act, 2008, the definition of "industrial establishment" has been enlarged to include every "Establishment to which the West Pakistan Shops and Establishment Ordinance, 1969 for the time being applies".
This effectively means any person deriving income from business is now chargeable to WWF. Moreover, by virtue of amendment made through Finance Act, 2006 it is payable not only on the taxable income but also on incomes covered under the fixed/final tax regime of the income tax. It has been observed that in many cases WWF is not paid by all persons and in particular by those deriving income from fixed/final tax regime.
In view of multiple opinions on the legal provisions as to levy WWF by invoking section 122 or 221 of the Income Tax Ordinance, 2001, the Legal Wing of FBR, after seeking legal opinion, may issue clear-cut directions in this respect. The ruling of Law and Justice Division would facilitate the FBR in proper collection of the WWF by all concerned persons liable to pay the tax. At present, different legal opinions on the calculation of the WWF have created confusion and clear-cut instructions are needed for collection of the WWF, sources added.
In case WWF is not paid totally, the tax officials should direct the concerned person to explain as to why WWF is not paid. In case WWF short paid, working and basis of calculation of WWF paid as per return.
About the assignment of the auditors to check the WWF, sources said that the auditors should calculate the amount of WWF payable wherever applicable under the law. The auditors should also examine the income tax returns in detail and determine whether it is a fit case for detailed audit or not (based on any risk criteria in the opinion of the auditor). If auditors detect a fit case, it should be referred for detailed audit to Commissioner for initiating proceedings under section 177 of the Income Tax Ordinance 2001.
Sources said that if it is not a good case for detailed audit, the concerned officer should take appropriate action under section 122 or 221 of the Income Tax Ordinance, 2001 if warranted by the conclusions drawn or close the case without any further action.
Legal experts further stated that "Establishment" means a shop, commercial establishment, industrial establishment, private dispensary, maternity home, residential hotel, restaurant, eating house, cafe, cinema, theatre, circus, or other place of public amusement or entertainment, and such other establishments or class thereof as Government may, by notification in the official Gazette, declare to be establishments for the purposes of this Ordinance.
They explained that the following is the method of calculation of WWF:
1. Is there income from business including presumptive tax regime (PTR) sources?
2. If 'Yes', WWF applies. For this purpose, determination of accounting income from all sources is required.
3. Determination of accounting income from all sources (method):
a. Net accounting profit; plus
b. Income from salary including bonus, retirement benefits, arrears of salary, flying and submarine allowance; plus
c. Income from property; plus
d. Capital gains; plus
e. Income from other sources including those covered under fixed/final tax regime.
4. Determination of returned income (method):
a. Total income as per return; plus
b. Bonus; retirement benefits, arrears of salary and flying and submarine allowance; plus
c. Property income subject to fixed tax (not subject to WHT): plus
d. Business income subject to fixed tax (income attributable to locally purchased imported edible oil, contracts executed out-side Pakistan, retail sales covered under section 11 3A and 11 3B of Income Tax Ordinance, 2001 and services rendered out-side Pakistan); plus
e. Four percent of receipts/value on account of, subject to final tax as per statement of final taxation. For the tax year 2010 - the areas covered for this purpose included rent of property, goods imported, sale of goods, execution of contracts by residents, execution of contracts by non-residents, export of goods, services of stitching, dying, etc, services of goods transport plying for hire, foreign indenting commission, advertising agent commission, petrol pump operator commission, other commission and brokerage, export indenting commission, royalty of non-residents, fee for technical services of non-residents, insurance and re-insurance premium of nonresidents, advertisement services of non-residents sales of CNG, sales of vegetable ghee or cooking oil attributable to purchase of locally produced edible oil, dividend, profit on debt, prizes and winnings.
The above mentioned method and sources would be used for calculation of WWF including determination of accounting income from all sources etc.