To tackle Pakistan’s ongoing fiscal challenges and improve tax compliance, the Federal Board of Revenue (FBR) has introduced tough new measures aimed at non-filers through the Tax Law Amendment Bill 2024-25. These steps are designed to expand the tax base, reduce evasion, and boost revenue collection, marking a major shift toward a more transparent tax system.
Presenting the bill in the National Assembly, Finance Minister Muhammad Aurangzeb highlighted its importance in achieving economic stability and addressing Pakistan’s low tax-to-GDP ratio.
Key Measures Proposed by the FBR
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Restrictions on Asset Purchases
- Vehicle Purchases: Non-filers will be prohibited from buying vehicles over 800cc, though they can still purchase motorcycles, rickshaws, and tractors.
- Property Transactions: Non-filers will not be allowed to purchase property above a certain value, aiming to curb unreported investments in real estate.
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Banking Limitations
- Account Freezing: Business owners who are not registered will risk having their bank accounts frozen. The FBR now has the authority to block accounts and property deals until individuals register for sales tax.
- Transaction Restrictions: Non-filers will face limits on the number and scope of financial transactions they can carry out.
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Stock Market Restrictions
- Non-filers will be banned from engaging in stock market activities, limiting their ability to benefit from unaccounted wealth.
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Higher Tax Rates
- Non-filers will face higher taxes on income from debt and business supply chains, creating an incentive to formalize their finances.
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Enforcement Mechanisms
- Property Seizure: The government will have the power to seize or seal properties and businesses owned by unregistered individuals.
- Utilities and Travel: Non-filers may face disconnection of utility services, including mobile phones, and be restricted from international travel.
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Family Tax Compliance
- The bill introduces a provision where families of filers—parents, spouses, and children under 25—will be recognized as filers as well, simplifying compliance and reducing evasion through unregistered dependents.
Why Are These Laws Being Enforced?
Pakistan is facing a serious fiscal crisis, with its tax-to-GDP ratio at just 10.3%, one of the lowest in the region. This is largely due to a narrow tax base, widespread evasion, and a significant informal economy.
Goals Behind the New Measures
- Increase Revenue Collection: These changes aim to bridge the Rs5.1 trillion tax revenue gap by tapping into untapped revenue sources.
- Expand the Tax Base: By bringing more individuals and businesses into the formal economy, the government hopes to increase compliance.
- Reduce Tax Evasion: With stricter rules around asset purchases and banking, the aim is to close the loopholes exploited by non-filers.
Finance Minister Aurangzeb emphasized that boosting Pakistan’s tax-to-GDP ratio to 13% is essential for the country’s long-term economic growth.
Impact of the New Laws
While the measures are strict, they are designed to create a fairer tax system and encourage greater compliance. Immediate effects include:
- Higher Taxpayer Registration: More individuals and businesses are expected to register to avoid facing restrictions.
- Transparency in Financial Transactions: By limiting cash-based transactions, particularly in real estate, these changes will push for greater transparency.
- Economic Stabilization: Increased tax revenue will help fund vital public services and reduce dependence on external borrowing.
Challenges and Opportunities
Some groups have criticized the new laws, fearing disruptions in their operations. However, FBR Chairman Rashid Mahmood Langrial has stressed that these measures are crucial to addressing the country’s fiscal problems. While acknowledging gaps in the taxation system, particularly around sales and income tax, he believes the reforms will help capture untapped revenue and encourage more people to comply.
Conclusion
The FBR’s tough new rules for non-filers signal Pakistan’s commitment to better fiscal discipline and greater transparency. These changes aim to tackle longstanding issues of tax evasion and narrow tax compliance, promoting a fairer and more equitable economy.
While the new laws might bring initial challenges, they represent a necessary step toward economic stability and a healthier tax culture. For non-filers, the message is clear: either join the formal economy or face growing restrictions on your financial freedom and lifestyle choices.
