THE Federal Board of Revenue (FBR) has always boasted itself to be a taxpayer-friendly institution. However, its Corporate Tax Office in Karachi has failed to resolve a matter related to employee retirement funds for more than a month.

As such, these funds (pension/gratuity/provident funds), recognised under the Income Tax Ordinance, 2001, are exempt from tax, and certain withholding tax provisions of the Ordinance also do not apply to them in view of a specific clause in part IV of the second schedule.

The Sindh High Court (SHC), in a recent judgment that is currently under challenge before the Supreme Court, held that such entities were nevertheless required to obtain an exemption certificate from the pffice of Commissioner Inland Revenue (CIR). However, the high courts in Lahore and Peshawar have already ruled otherwise on the basis that in the presence of a specific provision in the law itself, such a certificate is not required.

Consequently, employee retirement funds obtain exemption certificates from the CIR every year in the month of July by filing applications online. The certificates used to be issued within 15 days. The position changed this year, and changed for the worse. The CIR concerned did not act as per the requirements of the office despite repeated approaches made by relevant individuals. The official merely disposed of a small number of cases before proceeding on leave in the last week of July. Most applications were made in the last week of June, as the exemption certificates issued in July 2023 were for a period of one year, expiring on June 30.

The charge of office was then given to another official effective July 30. It has been several working days that the new official has assumed the charge, but the taxpayers are still waiting for the ce- rtificates to be issued. Not even 100 out of more than 1,500 pending applications have been disposed of during this time.

The misery is that in the absence of exemption certificates, as held by the SHC, withholding agents, which are mostly banks, withheld tax from the payment of profit on investments/ bank accounts of all such funds in July. In fact, such tax, once deposited in the government treasury, cannot be reversed and can only be claimed as refundable in the return of income. Obtaining a refund from FBR is a cumbersome process involving a number of requisites. And this is no secret as to how tax refunds are processed and issued to the taxpayers.

The matter has also been brought to the knowledge of the chief commissioner concerned by the Karachi Tax Bar Ass- ociation, but the matter has not moved forward at all. The FBR chief and others concerned should take immediate steps to resolve the issue, the pendency of which has already caused much distress to the taxpayers and the tax practitioners alike.

Name withheld on request
Karachi

Published in Dawn, August 17th, 2024