LAHORE: Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue (FBR) to obtain information of foreign students from private medical colleges, governed by trusts, where fees are paid from abroad.
The FTO has asked the FBR to ascertain whether such amounts (fees from foreign countries) are declared in receipts as per audited accounts of these medical colleges.
The FTO Secretariat has initiated “own motion investigation” into the tax affairs of private medical colleges’ operating in Pakistan.
According to the FTO’s order, currently, in addition to public sector medical & dental colleges, there are around 75 PMDC approved medical and 43 dental colleges in Pakistan.
Though PMDC maintains a structured regulatory mechanism, yet tax matters of these private colleges have not been appropriately attended by the FBR. During the past few years, there has been regular reporting in media about the irregularities and violations of tax laws committed by private medical colleges.
The reports contains a detailed account of maladministration with reference to irregularities committed by trusts controlling the medical colleges, especially improper compliance of withholding taxes, non-conformity with stipulations attached to NPO status, irregularities committed while issuing approvals under section 2(36) of the Income Tax Ordinance 2001 and lack of well-structured audit of withholding taxes.
The main issues involved in the referred report are briefly summarized: (i); The trusts controlling medical colleges get approval u/s 2(36) of the Income Tax Ordinance, 2001; however, thereafter misuse the same, i.e., running these institutions commercially for profit.
(ii); The Trusts/ Private Medical Colleges do not get the approval u/s 2(36) of the Ordinance 2001, renewed periodically, thus keep on flouting law.
(iii); Private Medical Colleges are not discharging their tax withholding obligations properly.
(iv); There is no proper withholding tax audit conducted by FBR field offices.
(v); Fees charged from overseas students are not reflected in their accounts for taxation.
(vi); Allegedly, the Private Medical Colleges siphon off receipts from overseas students, to unknown accounts, thus depriving the tax department from due withholding on the same.
(vii); The controlling Trusts & Medical Colleges also do not conform to the rules and regulations of PMDC as regards to charitable functions; the very basis for claiming exemption.
(viii); The Private Medical Colleges suppress their receipts as declared before the Tax Deptt.
(ix); The Private Medical Colleges get heavy donations from affluent parents in the range of Rs1.4 million to Rs4 million but do not declare in accounts subject to audit.
(x); Mostly controlling Trusts are being run as family enterprises on commercial basis.
The contents of the said reports exhibit serious threats to proper taxation, especially withholding tax regime. Prima facie, the given malpractices and violations occur because lack of stringent and well-defined periodic audit of tax withholding approval regime under section 2(36) of the Income Tax Ordinance 2001.
The FBR informed the FTO that the audit in this case has been initiated and the status of the NPO is under review.
FTO ruled that the delay and inaction, in addressing the discrepancies, highlighted in respect of the Health and Education Foundation constitutes mal-administration under the FTO Ordinance.
FTO has recommended the Commissioner IR Zone-I Corporate Regional Tax Office Lahore to conduct a complete case review so as to address the loopholes/ risk areas identified as per law.
FTO has further recommended that the FBR should obtain information of foreign students, whose fees are paid from abroad and ascertain whether such amounts are declared in receipts as per audited accounts.
