NBR has to shun the double standard

When the new income tax law made tax returns and payment of tax on their earnings at a rate of 27.5 per cent mandatory for the provident fund (PF) in the private sector, private sector employees vented their deep frustration. Before, PFs registered with the NBR were not required to submit tax returns or pay income tax. The banks and other relevant institutions used to deduct tax at source from interest income from investment in FDR or savings tools, as they do in other cases.
The government is reportedly considering a cut in the tax rate levied on PF earnings to 15 per cent. But why should there be a tax on private PFs when their counterparts in the public sector face no such harsh tax measure? Private sector employees expressed their deep anguish, saying the imposition of tax is illogical and discriminatory.
It is not known how much the government will gain, in terms of revenue earnings from tax on PFs. But even a 15 per cent cut would cause a notable financial loss to many private sector employees. The only pecuniary benefit that most employees get while leaving a private firm or factory is PF money. They are usually deprived of other departing benefits, including gratuity. It is quite intriguing that the NBR chose PFs as its source of revenue when many other potential tax sources have remained untouched.
That the NBR decision to levy tax on PFs was rash and ill-conceived has come to light from the hassles the fund managers, here trustees, have been facing while trying to file their tax returns. According to a FE report published a couple of days back, PFs though considered individual taxpayers are unable to collect their electronic Taxpayer Identification Numbers (eTINs) due to the absence of all-essential link between the income tax technical wing and the national identification number (NID) servers. Interestingly, though the NBR is considering the PFs as individual taxpayers, tax rates and compliance requirements for the latter are identical to corporate taxpayers.
PFs of many private organisations are reportedly filing tax returns under the 'Trust' or 'Association of Persons' categories in the absence of a proper registration mechanism. The 1984 tax ordinance had exempted the trust funds from payment of tax. Many banks are finding it difficult to submit returns of their PFs since their accounting year is calendar year-based.
The problems that have cropped up centring around the PF taxation make it quite clear that the NBR's decision was akin to putting the cart before the horse. It did not feel the necessity to consult with the relevant stakeholders before making a decision that would affect the interests of thousands of private sector employees.
The moot issue of debate here is the imposition of tax on private sector PFs while exempting the same belonging to government employees. The private sector people have accused the NBR of maintaining a double standard which had been the case with the payment of income tax by government employees until a few years back. The government used to pay that tax from its coffer.
The government should not be lenient only to its employees, who are presently enjoying enviable perks and privileges. It needs to look into the retirement benefits a vast majority of private sector employees get.
Exempting the recently introduced Universal Pension Scheme (UPS) from payment of tax, the government itself has upheld the principle of not taxing retirement benefits. The profit earned from investment under UPS has been exempted from tax. Money a private employee gets from a provident fund is also considered a retirement benefit. The same principle, thus, needs also be applied here.

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