Punjab arts council told not to deduct withholding tax

ISLAMABAD: After receiving over 140 complaints, the Federal Tax Ombudsman (FTO) has barred the Punjab Council of Arts and Culture (PCAC) from deducting withholding tax at a rate of 20pc from filers and 40pc from non-filers.

Several complaints were filed to address tax deductions under Section 156 of the Income Tax Ordinance, 2001, concerning payments received from the Punjab Council of Arts and Culture Lahore. They were collectively addressed in this consolidated order. The complainants, predominantly students of art and music, partake in events organized by the Punjab Council of Arts and Culture (PCAC). In return for their participation, they receive compensation in the form of participation fees and remuneration. However, the Punjab Council deducts withholding tax at rates of 20pc for filers and 40pc for non-filers causing financial strain on the complainants.

The issue was brought to the attention of the Federal Tax Ombudsman, with comments sought from the secretary Revenue Division. The Regional Tax Officer (RTO) contended that the payments to the complainants constitute prize money, with specified rates for filers and non-filers. The RTO further argued that no exemption limit applies to these payments. The Punjab Council of Arts & Culture representative clarified that the payments are honoraria/participation fees, not prize money as interpreted by the tax authorities.

The Federal Tax Ombudsman examined the relevant provision of law and concluded that the payments to the complainants resemble payments for services rendered. Thus, excessive taxation under Section 156 was deemed unjustified and indicative of maladministration.

He directed the FBR to direct the Punjab Council of Arts to refrain from tax deductions under Section 156 of the Ordinance, 2001. Furthermore, it is instructed to ensure that tax deductions, where applicable, are made under Section 153(1)(b) of the Income Tax Ordinance, 2001. Additionally, the withholding agent was directed not to withhold tax when payments to an individual. He found that the excess and un-justified charging of tax u/s 156 is a clear instance of maladministration.