The Federal Board of Revenue (FBR) in Pakistan announced a series of restrictions targeting non-filers to enhance tax compliance and broaden the tax base by abolishing the non-filer category. This move is part of the FBR’s transformation plan, which has received approval from the Prime Minister.
The initial restrictions include purchasing property, buying cars, investing in mutual funds, opening current accounts, and engaging in international travel (except for religious purposes). FBR Chairman Rashid Mahmood Langrial revealed that 15 specific activities would be prohibited for individuals who fail to file their tax returns, with an initial focus on these five key areas.
The measure will be implemented through an ordinance, with the FBR already working on the rules and involving the law ministry in the process. The FBR chairman criticized the concept of non-filers, asserting that such classifications do not exist globally and should be abolished. Instead, the focus will be on compliant versus non-compliant taxpayers.
Using sophisticated machine learning and algorithms, the FBR aims to identify non-filers. Langrial highlighted that only Rs 25 billion in fees were collected from non-filers last year, while the potential tax revenue from these individuals remains uncollected. Although these restrictions will not be implemented all at once, they will be rolled out over the next few months.
Non-filers will be barred from opening traditional bank accounts, except for basic accounts for low-income individuals. The FBR plans to enhance automation and manpower at critical entry points across the country to combat smuggling. The FBR is also collaborating with the State Bank of Pakistan to monitor individuals whose income levels do not align with their transaction volumes, enabling commercial banks to report discrepancies.
Minister of State for Finance Ali Pervaiz Malik emphasized a shift towards a more inclusive consultation process with stakeholders. He stated that the FBR is implementing digitalization initiatives aimed at formalizing untaxed sectors and encouraging compliance while also introducing punitive measures against tax evasion, including under-invoicing and mis-declaration.
Malik highlighted the government’s aggressive taxation efforts, noting a collection of Rs 3.5 trillion in one year. He reiterated the government’s commitment to addressing tax evasion and increasing the overall tax-to-GDP ratio, which has remained stagnant in recent years.
The FBR chairman indicated that issues related to employee collusion at ports would be addressed before December. A system will be put in place to prevent long-term assignments at one location. Industrialists, dubbed “revenue spinners,” expressed their support for the FBR’s documentation and automation efforts. Arif Habib, an industrial representative, suggested that without taxing the agricultural sector, the tax-to-GDP ratio would remain stagnant.
The chairman mentioned that cars crossing the Indus River would be confiscated from non-filers, marking a significant policy shift. He stressed the importance of data integration as a crucial step in these reforms.
In response to industry concerns, a representative from the auto sector suggested increasing taxes on non-filers instead of outright bans. However, the chairman countered by saying that previous attempts to do so had failed. A representative from Unilever commended the FBR’s initiatives and urged for greater activity from the Intellectual Property Rights (IPR) wing. Representatives from the dairy and textile sectors expressed their willingness to collaborate with the FBR on ongoing reforms, signaling a collective effort towards a more documented and compliant economy.
These measures by the FBR are aimed at creating a disincentive for non-filers and encouraging compliance among taxpayers. The focus on automation, data integration, and industry collaboration is expected to transform Pakistan’s tax landscape significantly.
