The Federal Tax Ombudsman (FTO) has found misappropriations and irregularities by Trusts controlling the medical colleges.
This included improper compliance with withholding taxes, nonconformity with stipulations attached to NPO status, and irregularities committed while issuing approvals. The Own Motion Investigation was ordered vide No.0043/OM12023 into tax affairs in the case of medical colleges.
According to an order issued by the FTO, the trusts controlling medical colleges get approval u/s 2(36) of the Income Tax Ordinance, 2001, however, thereafter misuse the same i.e. are running commercially for profit.
The Trusts/private medical colleges do not get the approval u/s2(36) of the Ordinance 2001 renewed periodically, thus keeping on flouting the law. The private medical colleges are not discharging their tax withholding obligations properly.
There is no proper withholding tax audit conducted by FBR field offices. The fees charged from overseas students are not reflected in accounts for taxation. Allegedly, the private medical colleges siphon off receipts from overseas students to unknown accounts, thus depriving the Tax department of due withholding on the same.
The controlling Trusts & medical colleges also do not conform to the rules and regulations of PMDC about charitable functions; the very basis for claiming exemption. The private medical colleges suppress their receipts as declared before the Tax department.
The private medical colleges get heavy donations from affluent parents in the range of 14 Lacs to 40 Lacs but do not declare in accounts subject to audit. Most controlling Trusts are being run as family enterprises on a commercial basis.
This exhibited serious threats to proper taxation, withholding taxes, and also to the charitable functions of these entities. Prima facie, the above-given malpractices and violations occur because of a lack of stringent and well-defined periodic audit of the tax withholding approval regime u/s 2(36) of the Income Tax Ordinance, 2001.
According to the data available, in the city of Lahore alone there are approximately 26 such private medical colleges/Trusts operating on an extensive basis. The above-mentioned account necessitated that an Own Motion Investigation be carried out into the tax affairs of private medical colleges and Trusts.
FTO has directed the FBR to conduct a complete case review to address the loopholes/risk areas identified above, as per law and after allowing a proper hearing. The FBR should requisition and analyze segregated lists of employees of Ibadat Educational Trust to verify whether all the faculty members, reflected on the college website are being regularly subjected to withholding taxes or not.
All employees receiving taxable salaries are borne on Tax Roll and in cases of default, details be shared with the concerned RTO for BTB purposes. How the share from practice at College Teaching Hospital is being paid to specialists and what is the mechanism for tax deduction at source.
FBR should obtain information on foreign students whose fees are paid from abroad and ascertain whether such amounts are declared in receipts as per audited accounts, FTO added.
