Jessica Heygate
Updated on: October 13, 2024 1:12 pm GMT
In a bold move to enhance tax compliance and increase revenue, Prime Minister Shehbaz Sharif has approved stringent measures that will significantly impact non-filers of tax returns in Pakistan. With expectations of recovering an estimated Rs450 billion (approximately $2.6 billion) in tax revenue, these initiatives mark a pivotal shift in the government’s approach to tax enforcement, placing significant restrictions on those who fail to comply with tax regulations.
New Restrictions on Non-Filers
The Federal Board of Revenue (FBR) is set to implement a series of restrictions aimed at non-filers, which include:
- Banning all banking transactions for those who do not file tax returns.
- Prohibiting the purchase of vehicles and real estate for non-filers.
- Limiting access to financial instruments, unless they qualify for an “Asaan Account,” a simplified banking option.
This three-tiered approach categorizes individuals based on their declared income, creating a structured method of enforcement. Only individuals declaring more than Rs10 million in income will have unrestricted access to these benefits. Those with lower incomes will need to justify their financial decisions when engaging in significant transactions.
The Economic Landscape
The measures come as part of the FBR’s Indigenous Transformation Plan, aimed at addressing the structural issues that have long hindered revenue growth in Pakistan. The plan highlights that currently only 14% of manufacturers are registered for sales tax, while the vast majority—around 86%—remain unregistered. Additionally, among wholesalers and retailers, registration rates are alarmingly low at just 25% and 8%, respectively.
Enforcement Measures and Penalties
The new enforcement activities proposed by the FBR are comprehensive and include:
- Freezing bank accounts of unregistered traders with an annual turnover exceeding Rs250 million.
- Imposing new penalties of Rs1 million for non-compliance with tax regulations.
- Seizing properties and sealing premises of unregistered entities.
These actions aim to close the gaps in documentation, especially concerning the under-declaration of income. The intention is clear: the government wants to tighten control over the financial activities and ensure those who evade taxes face strict consequences.
Performance Incentives for Tax Officers
In a further effort to enhance compliance, the FBR has proposed a performance-based incentive system for tax officials, combining integrity assessments and output metrics. Under this system, officials will be rewarded based on 60% integrity and 40% performance, fostering a culture of accountability and diligence within the tax administration.
Digital Tracking Initiatives
To improve tax collection, the government is also focusing on digital tracking of services within the economy. Prime Minister Sharif has endorsed the FBR’s plans to expand the Point of Sale (POS) system across several sectors, including:
- Wholesale and retail
- Transport and financial services
- Real estate and construction
- Utilities and health
- Education and hospitality
The FBR has identified capturing comprehensive data from these sectors as crucial for meeting the ambitious annual tax target of Rs12.97 trillion (approximately $78.5 billion).
Government Expectations and Challenges
The government faces substantial challenges in achieving its revenue goals. Current collections for the July-September quarter have fallen short, amounting to only Rs500 billion against a target of Rs1.2 trillion. The International Monetary Fund (IMF) has laid down strict conditions for financial support, which hinges on the government’s ability to meet its revenue targets.
Finance Minister Muhammad Aurangzeb mentioned that revamping the tax system and closing loopholes would be instrumental in achieving the required revenue levels.
Looking Ahead
The upcoming weeks will be crucial as the government works to implement these measures effectively. Prime Minister Sharif’s announcements underline the seriousness with which his administration is treating tax compliance as the backbone of Pakistan’s economy.
As these changes roll out, many are watching closely to see how they will reshape the economic landscape and address persistent issues of tax evasion and revenue leakage. The government aims not only to increase compliance but also to improve service delivery and strengthen the social sector through enhanced tax collections.
The government is working hard to change Pakistan’s tax system. They want to make it better so that it helps the economy in the long run. There are still many challenges ahead, but the steps taken by the Federal Board of Revenue (FBR) might be the start of a big change in how taxes are collected in Pakistan.
