FBR to bring private education institutions into tax net

Karachi: A tax credit, allowed to salaried and individual taxpayers on education expenses, would widen the tax base by bringing those private educational institutions, which are not paying their fair share of taxes, sources said on Monday.

 The government, through the Finance Act, 2016, allows individuals, having annual income of less than one million rupees a tax credit of five percent of total tuition fee paid in a year or they can claim education expenses of up to 25 percent of the total annual taxable income.

Sources at the Federal Board of Revenue (FBR) said the incentive was allowed in order to identify new taxpayers and motivate the existing taxpayers to file tax return.

A tax official said a large number of educational institutions are operating in the undocumented economy and their income remains untaxed. “To avail the incentive, individuals are required to provide evidence of fees paid to educational institutions,” the official added.

As per the new Section 64AB of Income Tax Ordinance, 2001, the tax allowance will not be carried forward to the next year. Further, the incentive is only allowed on furnishing the national tax number by parents or providing name of educational institutions.

However, the clause 5 of the section restricts claiming allowance by salaried persons at the time of withholding tax by employers.

Muhammad Zubair, ex-president at Karachi Tax Bar Association (KTBA) said the salaried persons are allowed tax incentives but only at the time of income tax return filing.

The employer as withholding tax agent has been empowered to make certain adjustment while preparing the salary of employees.

A withholding tax brochure issued by the FBR in 2006 said the employer is allowed to make adjustment of income tax collected along with the telephone bills and/or motor vehicle tax from the employees having income exclusively from salary.

“The employer is required to obtain the evidence of such tax collected and also to ensure that such employee is himself/herself the subscriber of telephone and owner of the motor vehicle,” read the brochure.

The purpose of allowing tax incentive for persons was to facilitate lower income group of the society.

An estimate said total number of income tax return filers in tax year 2013 was around 875,000; out of which 704,888 were those individual filers who had annual income of below one million rupees.