The Federal Board of Revenue (FBR) has shed light on the taxation of income for authors through Section 89 of the Income Tax Ordinance, 2001.
This section, included in the updated ordinance up to June 30, 2021, brings clarity to the treatment of lump sum amounts received by authors of literary or artistic works, particularly when the time taken to complete the work exceeds twenty-four months.
Incorporated through the Finance Act, 2021, Section 89 addresses the unique circumstances faced by authors in the creative industry. The text of Section 89 is as follows:
89. Authors. — “Where the time taken by an author of a literary or artistic work to complete the work exceeds twenty-four months, the author may elect to treat any lump sum amount received by the author in a tax year on account of royalties in respect of the work as having been received in that tax year and the preceding two tax years in equal proportions.”
This provision recognizes the extended timelines often associated with the creation of literary or artistic works. It allows authors the flexibility to manage the taxation of lump sum amounts received as royalties over an extended period, acknowledging the nature of their creative process.
The key features of Section 89 include:
1. Extended Timeframe for Completion:
• The provision is triggered when the time taken by an author to complete a literary or artistic work exceeds twenty-four months. This recognizes the varying timelines required for the creative process.
2. Election for Lump Sum Amounts:
• Authors have the option to elect to treat any lump sum amount received on account of royalties in a tax year as if it had been received in that tax year and the preceding two tax years. This provides a more extended window for the author to allocate and manage the tax liability associated with such income.
3. Equal Proportions Allocation:
• The lump sum amount is to be distributed in equal proportions across the tax year in which it is received and the two preceding tax years. This allows for a more balanced and gradual recognition of the income for tax purposes.
The introduction of this section is a testament to the acknowledgment of the unique challenges faced by authors in the creative industry. The extended timeframes and irregular income patterns associated with their work require a nuanced approach to taxation. Section 89 provides a mechanism to align the tax treatment with the practicalities of the creative process.
Authors and stakeholders in the literary and artistic community are encouraged to be aware of these provisions to ensure compliance with tax regulations. As tax laws are subject to change, it is advisable to stay updated with the latest amendments and seek professional advice when necessary. The FBR remains committed to fostering a tax environment that recognizes and accommodates the diverse needs of various industries within the country.
