KARACHI: Collection of taxes on prizes and lottery winnings surged 19 percent to Rs11.5 billion during the fiscal year of 2017/18 as the Federal Board of Revenue (FBR) stepped up efforts to improve compliance of withholding agents, official data revealed on Saturday.
The official data showed that collection of income tax from prizes and winnings increased from Rs9.64 billion in the preceding fiscal year.
Under a law, an individual or entity paying on a prize bond, a raffle, lottery, or cross-word puzzle needs to deduct tax on the gross amount.
In case the prize is not in cash, the individual or entity is required to collect tax on the fair market value of the prize.
The FBR said tax collected under the head is a final tax on the income from prizes or winnings. The rate of tax on the prizes and winnings was 15 percent on the gross amount. However, the rate was increased to 25 percent for non-filers of income tax returns for the tax year of 2016/17.
In the last fiscal year, FBR conducted monitoring of withholding exercise and unearthed huge tax evasion on prizes given by corporate entities through game shows aired on various television channels.
The officials said the television channels were running game shows and giving away huge amount of money and in-kinds, such as mobile phones, motor cycles and cars. The Large Taxpayers Unit (LTU) Karachi initiated action during the last fiscal year by issuing notices to different TV channels for taking information about tax deduction on prize winning and companies provided gifts and prizes under promotional schemes.
However, the television channels responded that no tax was deducted but the TV channels provided the details of corporate entities.
Consequently, the tax department issued notices to companies for obtaining information of promotional items on which the tax was to be deducted. It recovered more than a billion rupees through the drive. The LTU Karachi conducted similar investigation in a case of a company belonging to fast moving consumer goods related to promotional sales and on findings of tax evasion and recovered around Rs700 million.
(This news/article originally appeared in The News on Septemper 2nd, 2018)