withholding of income tax under section 153

Question

Can you guide me on withholding of income tax under section 153. Is it charged on gross value including sales tax or value excluding sales tax?

Answer 1

For the purpose of withholding income tax under section 153, particularly for the sale of goods, the tax is generally charged on the gross amount payable, which includes the sales tax, if any, payable in respect of the sale.

Section 153(3)(a) of the Income Tax Ordinance, 2001 explicitly states that "The tax collectible or deductible under sub-section (1) or sub-section (2) shall be computed on the gross amount of a receipt or payment". The various rates specified for the sale of goods in the First Schedule, Part III, also refer to a percentage of the "gross amount payable".

While an "Explanation" within Rule 12A of the Income Tax Rules, 2002 states that "gross receipt means net off receipts or turnover of Sales Tax or EFD paid", this specific explanation is located within the context of income of persons providing or rendering services in respect of construction contracts. This indicates that this particular definition of "gross receipt" applies to the computation of income for specific types of services (construction contracts), and it specifies that for income calculation, sales tax is netted off. This rule does not override the general principle for tax withholding under section 153 on the "gross amount payable" for the sale of goods, where no such exclusion for sales tax is specified within Section 153 itself.