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Funded/Unfunded Gratuity and WWF - Printable Version

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Funded/Unfunded Gratuity and WWF - bilal azhar - 08-22-2009

1.i just want to know what is the difference between funded and unfunded gratuity. what is the link of actuarial valuation with the accounts and how do we will link actuarial valuation with gratuity accounts.can somebody explain with the help of example. it compulsory for every manufacturing company to give Provident or gratuity to the employees as per labor laws of Pakistan.

3. A company has accounting loss for the year and his income is subject to final tax under Import/export etc. Should it need to pay Workers welfare fund (WWF)

- wsafca - 08-22-2009

Querry 1 To my understanding funded gratuity is the employee benifit scheme for which, a separate fund, trust or like arrangement has been made. Like OGDCL, Mari Gas and many other has arranged separate pension fund, providend fund and gratuity funds.
(Separate Board of Trustees In this case the related liabilities and assets are not recorded in books of the Company.( Usually Liability of the company is discharged when it pays to the fund, However it also depends upon whether it is defined contribution or defined benefit plan)

Whereas, Non funded gratuity is the plan where no separate arrangement as explained above has been made and all amount payable to employees is recorded as liability in the books of the company and like wise the related assets.

Valuation of the liabilities is made by the acturies which is then recorded in books of account of the company by debiting the provision and crediting the liability account. (Actuarial valuations are required becasue the liability is to be based on many assumptions, like the employee turnover, what would be his salary when the employee would leave)


Waqas Shabbir

- wsafca - 08-22-2009

Querry 2 I haven't read any stipulation in this regard. I had a discussion last time with the PArtner (though not specificaly for this purpose) he mentioned, Provident Gratuity and other benefits are paid to the employees at the discretion of the Management.

- wsafca - 08-22-2009

Querry 3 There are several sources WWF receipts

1-Initial deposit by the Federal Government of Rs, 100 Million
2- 2% of the total income,when the income exceeds Rs. 100,000 in any accounting year.
3- Surplus amount from WPPF is transfered to WWF.(5 % of the profit is transfered to WPPF.

I think line 2 is to be considered in your case

I have read the older versians of the ordinances and now could not search the new ones.

- kamranACA - 08-22-2009


As per employment laws, one retirement benefit in shape of gratuity, provident fund (or pension) is required to be paid to employees. However, there are certain limits as to the number of employees for applying such requirements.

WWF, in other than PTR cases, is levied on taxable income @ 2 percent. In case of tax loss no WWF is charged.

In case of PTR cases 2 percent of accounting profit or 2 percent of 4 percent of turnover, whichever is higher (or lower; just forgot) is to be charged as WWF.

To my understanding in case of loss no WWF is to be paid even by the PTR cases.


- wsafca - 08-22-2009

Dear Mr. Kamram

Thanx for clarification

Can you please give me some reference to that stipulation i.e payment of at least one staff retirement benefit.


Waqas Shabbir

- bilal azhar - 08-25-2009

Kamran bahi i found the following circular on fbr per this circular wwf provision should be made in the tax year 2009 for PTR Cases.


2. Further would u please give me the link of labour law (please mention name as well) in which it is written that provident or gratuity is must.i have searched a lot but failded to find the link


In my practical experience i havent seen any acturial valuatio for non funded gratuity. i think Acturial valuation is only for funded gratuity as gratuity fund is invested further etc etc. and i m still not able to understand its link with either the annual accounts or gratuity accounts.
can somebody else help me?

RE: Funded/Unfunded Gratuity and WWF - SMandhwani - 09-28-2015

can anybody please clear me these points:

- no gratuity is payable during the period an employer has established a provident fund in his establishment with equal contribution by the employer and workman, and both these contribution being payable to the workman even if he dismissed from service due to any reason including misconduct.] [Same for Approved pension fund with employer share more than 50%
- if there is a repugnance between any rule of an approved gratuity fund and any provision of part III of Sixth Schedule of the Income Tax Ordinance, 2001, the said rule shall, to the extent of repugnance, be of no effect and the Commissioner of Income Tax, at any time require that, such repugnance shall be removed from the rules of the fund.
-In case of outstanding balance of an eligible employee who is retired, does the company / fund has to show the balance payable to him in current liability under outgoing members?
- In case of unfunded gratuity. Is the liability to existing employees has to be shown as deferred liability in the financial statements of the company?

Please clear me with the above points and the relation of ITO with the retirement benefits

Thanks & Regards