A recent report from the Federal Tax Ombudsman (FTO) has clarified that employees engaged on a daily wages basis are explicitly subject to income tax deductions as per Section 149 of the Income Tax Ordinance, 2001.
The FTO’s detailed analysis highlights that the definition of “salary” within the Income Tax law is comprehensive and includes any amount an employee receives from their employment. This definition extends beyond basic pay to encompass various forms of compensation such as leave pay, overtime, bonuses, commissions, gratuities, and allowances for work conditions. Consequently, daily wage earners fall squarely within this broad definition and are therefore liable for income tax deductions, similar to permanent staff.
Equity in Taxation
The FTO report emphasized that all employees, irrespective of their employment classification – be it regular, temporary, contractual, or daily wages – are to be taxed as salaried individuals under Section 149. This provision is crucial for ensuring equitable tax treatment across the workforce.
Recognizing daily wage employees under Section 149 is seen as a significant step towards broadening the national tax base and ensuring fair contributions to government revenue from all segments of the workforce. The FTO’s findings serve as a strong reminder to both employers and employees about the necessity of appropriate income tax deduction at source for daily wage workers, mirroring the practice for other salaried personnel.
Employer Responsibilities and Compliance
The report also underscored the importance of employers adhering to tax regulations. Failure to correctly deduct taxes from employees, including those on daily wages, could lead to legal consequences for the employer.
In conclusion, the FTO’s statement reinforces that all employees, regardless of their type of employment, are governed by the same tax regulations. This clarification aims to bring greater fairness and consistency to the tax collection process, ultimately contributing positively to the nation’s fiscal health. The FTO’s position is rooted in the interpretation of Section 12(2) of the Income Tax Ordinance, 2001, which defines “salary.”
