FBR’s Tighter Rules for Non-Filers: A Step Towards Tax Compliance

In a bid to address Pakistan’s persistent fiscal challenges and improve tax compliance, the Federal Board of Revenue (FBR) has introduced stringent measures targeting non-filers through the Tax Law Amendment Bill 2024-25. These measures are designed to widen the tax net, curb evasion, and enhance revenue collection, marking a significant shift toward fostering a transparent tax culture.

Finance Minister Muhammad Aurangzeb presented the amendment in the National Assembly, emphasizing its role in achieving macroeconomic stability and addressing Pakistan’s low tax-to-GDP ratio.

Key Measures Proposed by the FBR

1. Restrictions on Asset Purchases

Vehicle Purchases: Non-filers are now barred from purchasing vehicles exceeding 800cc, though they may still acquire motorcycles, rickshaws, and tractors.
Property Transactions: Non-filers cannot buy property beyond a specified value threshold, reducing undocumented investments in real estate.

2. Banking Limitations

Account Freezing: Unregistered business owners risk having their bank accounts frozen. The FBR has been authorized to block accounts and property transactions until individuals register for sales tax.
Transaction Restrictions: Non-filers face strict limitations on the number and scope of financial transactions.

3. Stock Purchase Restrictions

Non-filers are prohibited from engaging in stock market activities, limiting their ability to benefit from undocumented wealth circulation.

4. Higher Tax Rates

Taxes on non-filers for profit on debt and business supply chains have been increased, incentivizing documentation.

5. Enforcement Mechanisms

Property Seizure: The government can seize or seal properties and businesses owned by unregistered individuals.
Utilities and Travel: Mobile phones and utility connections of non-filers may be disabled, and foreign travel is restricted.

6. Family Tax Compliance

The bill introduces a provision recognizing families of filers—parents, spouses, and children under 25—as filers, simplifying compliance and discouraging evasion through unregistered dependents.

Why Did the Government Enforce These Laws?

Pakistan faces a critical fiscal situation, with its tax-to-GDP ratio languishing at 10.3%—one of the lowest in the region. This imbalance stems from a narrow tax base, rampant evasion, and a massive informal economy.

Objectives Behind the Measures

Increase Revenue Collection: Addressing a shortfall of Rs5.1 trillion in tax revenue by capturing untapped potential.
Broaden the Tax Base: Bringing undocumented individuals and businesses into the formal economy.
Discourage Tax Evasion: Stricter asset and banking restrictions aim to eliminate loopholes exploited by non-filers.

Finance Minister Aurangzeb has also underscored the necessity of boosting Pakistan’s tax-to-GDP ratio to 13% for sustainable economic growth.

Impact of the New Laws

The measures, though strict, aim to create a fair tax system and encourage compliance. Their immediate effects include:

Increased Taxpayer Registration: Many individuals and businesses are expected to register to avoid restrictions.
Transparency in Financial Transactions: Limiting cash-based activities in sectors like real estate.
Economic Stabilization: Higher tax collection could fund critical public services and reduce reliance on external borrowing.

Challenges and Opportunities

The legislation has faced criticism from groups and individuals concerned about operational disruptions. However, FBR Chairman Rashid Mahmood Langrial has argued that these steps are essential for addressing the country’s fiscal challenges. He acknowledged gaps in the taxation system, particularly in sales and income tax, but highlighted the reforms’ potential to capture untapped revenue and incentivize compliance.

Conclusion

The FBR’s stringent measures against non-filers reflect Pakistan’s commitment to fiscal discipline and transparency. By enforcing these reforms, the government aims to address long-standing issues of tax evasion and narrow tax compliance, creating a more equitable economic framework.

While these changes may initially pose challenges, they represent a vital step toward economic stability and a fair tax culture. For non-filers, the message is clear: join the formal economy or face increasing restrictions on financial and lifestyle freedoms.