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Excessive Tax Deductions faced by Salaried Individuals, particularly Full-Time Teachers resulting in Undue Financial Strain are liable to adjustment under the provision of Section 149 of the Income Tax Ordinance 2001 --- Federal Tax Ombudsman

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Excessive Tax Deductions faced by Salaried Individuals, particularly Full-Time Teachers resulting in Undue Financial Strain are liable to adjustment under the provision of Section 149 of the Income Tax Ordinance 2001 --- Federal Tax Ombudsman

Islamabad 06-09-2024: In a significant move aimed at protecting salaried taxpayers from excessive tax deductions, the Federal Tax Ombudsman (FTO) initiated an Own Motion investigation under Section 9(1) of the Federal Tax Ombudsman Ordinance, 2000. The investigation, led by Hon’ble Federal Tax Ombudsman Dr. Asif Mahmood Jah, was triggered by numerous complaints regarding the failure of tax authorities to implement provisions allowing for the adjustment of tax credits, resulting in prolonged financial hardship for salaried persons, particularly full-time teachers.

The investigation revealed that full-time teachers employed in federal, provincial, and local government educational institutions were subjected to excessive tax deductions at source, under Section 149 of the Income Tax Ordinance, 2001. This is despite their eligibility for a 25% tax rebate under Clause (2) of Part III of the Second Schedule to the Income Tax Ordinance, 2001. The rebate applies to teachers working in recognized educational institutions, but it excludes medical professionals involved in private practice.

The FTO found that not only were the tax deductions unjustified, but salaried individuals were also deprived of adjustments for tax credits available under Sections 61 (donations to charitable institutions) and 63 (contributions to pension funds), leading to higher-than-necessary deductions throughout the financial year.

The failure to adjust tax credits and deductions at the withholding stage resulted in substantial financial strain on taxpayers, whose fixed income was further reduced due to non-compliance by withholding agents. The FTO emphasized that these sufferings could have been avoided if the legal provisions of Section 149 were properly implemented.

Despite clear legal provisions, the investigation found that withholding agents, including the Accountant General of Pakistan Revenues (AGPR) and district accounts offices, were not making efforts to adjust taxes withheld under other heads, such as property transactions and vehicle taxes. The district offices cited the SAP system, which they claimed did not allow them to adjust tax credits.

It was only after the FTO’s intervention that the Federal Board of Revenue (FBR) issued necessary instructions to the relevant accounts offices. The Commissioner of Withholding Taxes Zone at RTO Sukkur issued guidelines to adjust taxes in line with Section 149 of the Income Tax Ordinance, 2001, but this action came too late for many taxpayers.

The FTO expressed concern over the lack of proactive measures by the FBR and its failure to address the issue of tax adjustments. This inaction was deemed maladministration under Section 2(3) of the Federal Tax Ombudsman Ordinance, 2000. The judgment noted that salaried persons, despite being one of the most documented classes of taxpayers, were left to bear unnecessary financial hardships due to the failure of tax authorities.

The FTO’s judgment recommended that the FBR, AGPR, and provincial accounts offices implement changes to the SAP system to allow for timely adjustments of tax credits and avoid long delays in refunds, as required by Section 170 of the Income Tax Ordinance, 2001. Furthermore, it urged the FBR to develop a robust monitoring system to ensure compliance with Section 149 and other relevant tax provisions, protecting salaried taxpayers from future excessive deductions.

The FTO has given the FBR 90 days to report on compliance with these recommendations.

This landmark investigation by the FTO highlights the systemic issues within the tax deduction system for salaried individuals, especially full-time teachers. By shedding light on the failure of withholding agents to comply with legal provisions, the FTO’s judgment offers a path toward rectifying these injustices and ensuring salaried taxpayers receive the financial relief to which they are entitled under the law.

This legal news article summarizes the key findings and recommendations of the judgment while presenting the information in a format suitable for publication. Let me know if you need further adjustments.