FBR to abolish non-filer category as it tightens curbs on tax dodgers

• Initial restrictions include property, cars, mutual funds.
• 15 specific activities to be prohibited for non-tax payers. 
• Measure will be implemented through ordinance: official.

ISLAMABAD: The Federal Board of Revenue (FBR) announced Tuesday a series of restrictions targeting non-filers to enhance tax compliance and broaden the tax base by abolishing the non-filer category.

The initial restrictions include purchasing property, buying cars, investing in mutual funds, opening current accounts and engaging in international travel, except those for religious purposes.

The government is eliminating the non-filer category, meaning that individuals who previously paid a small fee to avoid taxes on these transactions will no longer be able to evade tax obligations.

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. These measures are part of the FBR’s transformation plan, which has received approval from the prime minister.

An official confirmed to The News that 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 criticised 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.

“Through sophisticated machine learning and algorithms, we will identify non-filers,” he said, adding that only Rs25 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, the chairman added.

Under the new policies, non-filers will be barred from opening traditional bank accounts, with the exception of basic accounts for low-income individuals. To combat smuggling, the FBR is enhancing automation and manpower at critical entry points across the country. 

“These initiatives aim to create a disincentive for non-filers and encourage compliance among taxpayers,” Langrial said while holding a consultative meeting with the top industrialists and business owners here on Tuesday.

He announced measures to restrict bank cheque usage, which has become an alternative currency among various entities. He mentioned collaboration 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. For compliant taxpayers, economic activities will be linked with banking activities. The FBR plans to implement a testing phase for these processes and grant time for adaptation.

Minister of State for Finance Ali Pervaiz Malik highlighted a shift towards a more inclusive consultation process with stakeholders. He stated that FBR is implementing digitalisation initiatives aimed at formalising untaxed sectors and encouraging compliance while also introducing punitive measures against tax evasion, including under-invoicing and mis-declaration.

“We did aggressive taxation of Rs3.5 trillion in one year,” Malik said, noting that the tax-to-GDP ratio has remained stagnant for several years. “We want to broaden our tax base and will go after the untaxed.” 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. There will be "replaceable system" to not keep them for long at one place, he said, while responding to concerns raised by industrialists about enforcement and documentation in the industry. Langrial expressed concerns over under-reporting and non-filing, stating that without addressing these issues, existing taxpayers would bear the brunt of increased taxes.

Later, the industrialists what they called “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. He pointed out issues like underutilisation of industrial capacity and high miss-declaration rates at the import stage.

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.

Originally published in The News