In a move to incentivize investment in employee development and welfare, Section 27 of the Income Tax Ordinance, 2001 allows for the adjustment of expenses incurred on employee training and facilities.
The provision, updated up to June 30, 2021, through the Finance Act, 2021, encourages businesses to contribute to the education, healthcare, and training needs of their workforce, fostering a conducive environment for skill development and well-being.
The specific text of Section 27 is outlined as follows:
27. Employee training and facilities.— A person shall be allowed a deduction for any expenditure (other than capital expenditure) incurred in a tax year in respect of—
(a) any educational institution or hospital in Pakistan established for the benefit of the person’s employees and their dependents;
(b) any institute in Pakistan established for the training of industrial workers recognized, aided, or run by the Federal Government or a Provincial Government or a Local Government; or
(c) the training of any person, being a citizen of Pakistan, in connection with a scheme approved by the Board for the purposes of this section.
Key components and implications of Section 27 include:
1. Deduction for Expenditure on Educational Institutions and Hospitals: Businesses are eligible for a deduction in any tax year for the expenditure incurred on educational institutions or hospitals in Pakistan established for the benefit of their employees and their dependents. This provision encourages corporate contributions to the education and healthcare sectors, promoting employee well-being.
2. Recognition of Institutes for Industrial Worker Training: Section 27 allows for a deduction in expenses incurred on institutes in Pakistan established for the training of industrial workers. These institutes, when recognized, aided, or run by the Federal Government, a Provincial Government, or a Local Government, are instrumental in enhancing the skills of the workforce in the industrial sector.
3. Approved Training Schemes by the Board: Businesses can avail themselves of deductions for the training of any person, who is a citizen of Pakistan, in connection with a scheme approved by the Board. This provision acknowledges the importance of continuous training and skill development for the overall growth of the workforce and the economy.
Commenting on Section 27, the Federal Board of Revenue (FBR) emphasized the significance of investing in employee development and welfare. The provision is designed to align business goals with societal well-being, encouraging businesses to play an active role in education, healthcare, and skill enhancement.
Industry experts lauded the inclusion of Section 27 in the Income Tax Ordinance, stating that it provides a financial incentive for businesses to contribute to social development. They noted that such provisions not only benefit employees and their families but also contribute to building a skilled and competitive workforce, ultimately fostering economic growth.
Businesses are encouraged to explore opportunities for deductions under Section 27 and consider investing in initiatives that contribute to the education, healthcare, and training needs of their employees. This not only aligns with corporate social responsibility but also has positive implications for the overall development and sustainability of the workforce.
