KARACHI: All industrial establishments owned or run by the federal government in Sindh are obligated to deposit Workers Welfare Fund (WWF) to the province after the promulgation of the Sindh Workers Welfare Fund Act, 2014.

The federal government that was collecting the fund earlier has yet to repeal the Federal WWF Ordinance, 1971.

This would lead to duplication of a tax. The issue was taken up by the Karachi Tax Bar Association (KTBA) with the Sindh Revenue Board (SRB). The association has demanded that necessary amendments be made in Sindh WWF Act so that exemption from WWF could be allowed to industrial establishments owned by the federal government as they are covered by the Federal WWF Ordinance.

The tax bar further pointed out that under the Sindh WWF Act, every industrial establishment located in Sindh is required to pay WWF. The term ‘located in Sindh’ has not been elaborated and issues will arise in computing the WWF in different situations.

The KTBA elaborated that in case an industrial establishment has a registered or principal office in the province, but has factory, outlet or branch in other provinces or vice versa , how such an industrial concern will compute and pay WWF.

The biggest issue would arise with regard to bank branches spread all over the country having either registered or principal office located in the province or outside Sindh, how such a bank will compute and pay WWF on profit attributable on branches located in Sindh.

Under the federal WWF Ordinance, WWF is payable at the rate of 2 per cent on profit before tax as per accounts and declared income as per the return of income.

The definition of ‘total income’ given in Section 2 (i) of the Workers Welfare Ordinance, 1971 clearly states the phrase ‘whichever is higher” of the two incomes.

But unfortunately, the definition of ‘total income’ given in Section 2(i) of the Sindh WWF Act, however, is missing and does not include such phrase which is an anomaly and has to be clarified and amended.

Furthermore, under section 60A of the Income Tax Ordinance, 2001, a taxpayer is entitled to a deductible allowance in respect of WWF paid under the Workers’ Welfare Fund Ordinance, 1971.

Although as per Section 5 of the Sindh WWF Act, the amount paid as WWF is declared claimable as a deductible expenditure for income tax purposes, no such corresponding deduction has yet been provided in the Income Tax Ordinance, 2011.

The KTBA suggested that both SRB and FBR need to coordinate on the issue to make necessary amendments in 60A of the Income Tax Ordinance, 2001, thereby allowing the taxpayer to claim the WWF payable to SRB as a tax deductible.

It has been further pointed out that under the FBR circular No 4(33)-Rev-Bud/99 (Feb 17, 2000) and as an established practice, income tax refunds can be adjusted against Federal WWF liability.

The taxpayers’ concern is whether they would be able to adjust the WWF payable to SRB against their income tax refunds in a similar manner unless both the SRB and FBR agree on the same.

Published in Dawn, November 3rd, 2015

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