FBR collects record Rs3.84bn withholding tax on educational fee

KARACHI: Tax collection on school fee reached a record high of 24 percent during the last fiscal year of 2017-18 with the authorities confirming on Tuesday the figures touched a whopping Rs3.84billion mark.

Officials at the Federal Board of Revenue (FBR) said higher cost of education and effective monitoring by tax officials resulted in increase of tax collection. The data on withholding tax revealed that the FBR collected Rs3.84 billion during fiscal year 2017/2018 as compared to Rs3.1 billion collected in preceding fiscal year.

Officials said the revenue collection had increased due to an increase in tuition fees by educational institutions during the fiscal year under review. Educational institutions are required to deduct withholding tax at the rate of 5 percent on an annual fee of or above Rs200,000 as received from parent or guardian of students.

This provision of withholding tax was introduced through Finance Act, 2013 in order to bring wealthy people, who can afford higher amount on education of their children, into the tax net. The tax is adjustable against the total liability in a year for a taxpayer, who filed annual income tax return.

The tax is only applicable on Pakistani resident and non-resident/foreigners are exempted from the levy on condition that: they provide passport as proof they live in Pakistan for less than 180 days; provide a certificate that they have no Pakistani source of income; and the fee is remitted directly from abroad through normal banking channel.

The FBR sources said the revenue body had obtained sufficient data of potential taxpayers from large educational institutions and many tax offices had initiated sending notices to force filing declaration of income in their respective jurisdictions.

“The FBR was also tightening noose around affluent people who had sent their children abroad for educational purpose,” one source said. This provision was included in the tax law through Finance Act, 2015 and registered 22 percent growth during FY18. The collection of withholding tax under this head grew to Rs364.72 million during 2017/2018 as compared with Rs299 million in the preceding fiscal year.

The source said banks and financial institutions are responsible to collect withholding tax at the time of remitting foreign exchange from the payer of education related expenses abroad. The term ‘education related expenses’ includes includes tuition fee, boarding and lodging expenses, any expenses for distant learning to any institution or university in a foreign country and any other expenses related or attributable to foreign education.