KARACHI: Federal Tax Ombudsman (FTO) Karachi on Thursday directed the Federal Board of Revenue (FBR) to deduct income tax under section 149 when the employees are paid under section 12 of the Income Tax Ordinance, 2001.

According to the details, the findings were passed in the complaint no 2538/ISB/IT/2021 of Muhammad Saleem Raza Vs Secretary Revenue Division and FBR’s clarification issued on April 11, 2022.

The order reflects that any payment made to the employees working on regular/ contract/ ad-hoc/ temporary/ daily wages having a relationship of employer/ employee falls within the definition of salary in terms of section 12 of the Income Tax Ordinance, 2001.

Therefore, the tax should be deducted under section 149 of the Ordinance on such payment as provided in part 1 of 1st schedule of the Ordinance and not under section 153 (1)(b) or (c) of the Income Tax Ordinance in the light of FBR clarification issued on April 11, 2022.

It is further to add that the Accountant General of Pakistan Revenue has already implemented the above findings.

Earlier, the FBR has clarified that the basic parameter is the existence of a master-servant relationship between persons and regular/ ad-hoc/ temporary/ daily wages, all are different shades and forms of employment and the law does not create any distinction among all these forms.

Furthermore, the board stated that if on a case to case basis, the relationship between payer and payee is found to be that of an employer and an employee respectively, then the income of such low paid employee under any of the forms of the employment, i.e., regular/ ad-hoc/ temporary/ daily wages would be treated as salary income under section 12 of Income Tax Ordinance, 2001.

Copyright Business Recorder, 2022