The Federal Tax Ombudsman (FTO) has issued a significant ruling in favor of art and music students in Pakistan. The decision prevents the Punjab Council of Arts and Culture from deducting high withholding taxes on honoraria and participation fees awarded to students in events and competitions.
Background:
- Several art and music students filed complaints with the FTO regarding high withholding tax deductions (20% for filers and 40% for non-filers) applied by the Punjab Council of Arts and Culture on their competition fees.
- Students argued this caused financial hardship, especially for low-income individuals.
FTO’s Findings:
- The FTO determined that the payments in question do not constitute “prize money” as defined by tax regulations (Section 156 of the Income Tax Ordinance, 2001). This section applies to prizes from sources like raffles, lotteries, and promotional sales, which don’t align with competition fees.
- The FTO concluded that these payments are more akin to “honoraria/participation fees” for services rendered, falling under Section 153(i)(b) of the Income Tax Ordinance.
FTO’s Decision:
- The FTO directed the Federal Board of Revenue (FBR) to instruct the Punjab Council of Arts and Culture to stop withholding tax deductions under Section 156.
- The FTO emphasized proper tax application. Withholding tax deductions, if applicable, should be made under the relevant Section 153(i)(b).
- The FTO reiterated the existing rule of not withholding tax on payments below Rs. 30,000 annually.
Expected Outcomes:
- This decision aims to alleviate the financial burden on art and music students, particularly those facing financial constraints.
- It promotes fairer tax application by ensuring proper categorization of payments and adherence to relevant tax regulations.
