Tax on prize money may create problems

KARACHI (June 12 2003) : The Finance Bill 2003 has proposed that every person paying prize on prize bond, or winning from a raffle, lottery, prize from winning a quiz, prize offered by companies for promotion of sale or crossword puzzle will deduct tax from the gross amount paid at the rate specified in the bill.

Analysts believe that the proposal of the bill would create serious problems for the tax payers and tax collectors.

The bill also said that where a prize is not in cash, the person while giving the prize will collect tax on the fair market value of the prize.

The tax deducted under the new rules will be final tax on the income from prizes or winnings.

Analysts say it is very difficult to implement it in its true sense as it is known that presently companies are offering prizes either by way of search cards or on lucky draws or by answering in a quiz competition.

The prizes vary from Re 1 in case of bubble gum to Rs 11 in case of tea, or a packet of biscuits, key chain, or in the form of items of very small value, to bumper prizes like air travel tickets, Mercedes cars, etc.

“There is no issue in either collection of tax or depositing the same on behalf of the winner in case of prizes of high value, but it will not be possible to manage tax collection or depositing the same in treasury for very small prizes,” said an analyst, Yakub Hashim Thara.

Under the law, it is required to deposit the tax in the name of the individual, along with the name, address, etc as required from time to time under the regime of withholding tax.

He said small prizes are paid on spot by shopkeepers to the winners and, in turn, they claim the amount from the company sponsoring the prizes and they are scattered throughout Pakistan from a small town and village to city like Karachi.

“It will be almost impossible to keep records of information of the consumer, which might be required under the law, as under the law either no protection is given or proposed to be given for non-submission of information to the tax authority as and when required,” he said.

Submission of tax on small prizes will not be of very significant nature but will only increase the administrative cost, work, effort and energy required to manage such collections and depositing of sales tax, he added.

He suggested that the Income Tax Bar Association should move a proposal to provide a limit of exemption say up to Rs 5000 and with such amendment the problem will be resolved and the Government will also get the required revenue without any unnecessary interaction between tax collectors and tax payers.

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