Enterprises andthe government are at odds over the taxing of the fund transferred to thecompany-level employee welfare fund. While the government wants to levy tax onwelfare fund if that is not spent in line with its purpose, companies say thatthe decision of the Inland Revenue Department to impose tax on such fund hasbeen problematic for both employees and business firms. 

After distributionof bonus to staffers, companies transfer surplus fund to their staff welfarefund. 

The IRD had issueda public notice in 2016 requiring companies to deduct taxes if thecompany-level employee welfare fund was to be distributed to employees. Thetaxation at various layers goes against the purpose of the welfare fund, arguemany company executives. 

As per the bonusact, each profit-making company has to allocate 10 percent of the net profitfor the bonus of employees. After distributing bonus equal to three or four orsix months’ salary based on the scale of income, the residual amount should betransferred to company-level welfare fund (70 percent of residual amount) andnational level welfare fund (remaining 30 percent). The contention between theprivate sector and the government is on the payment to employees from thecompany-level welfare fund. 

“If we follow theIRD’s directive, employees are going to be taxed at multiple levels,” said RaviKC, Surya Nepal’s corporate vice president. “When a company makes a profit,everybody gets benefited from it. Shareholders get return, government gets taxand employees get bonus. The taxation by the government on employees’ bonus atleast thrice is a kind of injustice to them,” added KC.

If the publicnotice of the IRD in this respect is to be followed, income tax will have to bededucted at 30 percent at the time of transferring to company-level employeewelfare fund after allocating 30 percent of the residual fund on national-levelwelfare fund. Then, there will be tax again up to 35 percent at the time of thepayment to employees for welfare activities from the company-level fund. 

“The result isthat employees will pocket only a nominal amount when there are taxes on thesame fund at minimum of three layers,” said KC. 

However, taxofficials say that the decision of taxation is due to growing misuse of suchfund. “How that fund is being used is of major concern. Companies should comeup with details of income and expenditure of that fund. Many companies seem tobe not using the money in line with the intent of the fund,” said Yagya PrasadDhungel, the IRD’s spokesperson.

Source:The Himalayan Times, 28^th January 2018