• Bill to be tabled in National Assembly for final approval
• Federal cabinet’s consent will still be required before taxmen can exercise new powers
• FBR chief says notices issued to 169,000 affluent ‘non-filers’

ISLAMABAD: As a Senate body approved the tax amendment bill on Thursday, the Federal Board of Revenue (FBR) announced that it had issued notices to some 169,000 influential individuals to bring them into the tax net, warning that more such people would be traced as the country move to digitise its tax process.

The Tax Amendment Bill 2024, cleared by the Senate Standing Committee on Finance and Revenue, is aimed at tightening regulations and curbing tax evasion.

It empowers the FBR to bar non-filers from purchasing vehicles over 800cc, opening bank accounts, buying property above a specified limit or acquiring shares.

The bill will now return to the National Assembly for final approval and become an act of parliament. However, the federal cabinet’s consent would be required for the FBR to exercise these new powers.

The FBR believes the tax reforms will help it address the significant tax gap of Rs7.1 trillion projected for the fiscal year 2025.

Crackdown on affluent non-filers

FBR Chairman Rashid Mahmood Langrial, flanked by Finance Minister Muhammad Aurangzeb, State Minister for Finance Ali Pervaiz Malik and Information Minister Attaullah Tarar, said that using the data analysis, the government had identified about 190,000 potential taxpayers, which must be in the tax net.

The data was further authenticated by the field formations, after which this ground-truthing of the top 5,000-6,000 was performed through field staff that confirmed around Rs7bn in taxes from them.

“If calculated today on the basis of 190,000 persons who should be direct taxpayers, there is an Rs50-60bn taxation pocket, easily,” he elaborated.

He said out of these 190,000 people, only 38,000 have filed returns and paid Rs370m tax, while notices were issued to 169,000 wealthy non-filers.

The FBR chief hoped that the number of returns filed by others would reach a satisfactory number in the coming months, insisting that the status of these notices is now centrally monitored and is time-bound.

Mr Langrial said that while 600,000 of the top 5pc of income earners had already filed returns and paid Rs620bn, 2.7m of such affluent individuals remained outside the tax net, with an estimated potential revenue of Rs1.7tr.

He informed the Senate that the number of top 1pc taxpayers is 672,000, who declared an average income of Rs13.2m. In future, the drive will be scaled up to bring more tax evaders into the tax net, he added.

Production monitoring

Mr Langrial highlighted production monitoring as a key initiative to curb tax evasion in industries such as sugar, cement, textiles and beverages. He noted that systems are in place for the sugar industry while monitoring mechanisms for other sectors are nearing completion.

“We have engaged Chinese consultants to help dev­elop our capacity for production monitoring,” he stated.

Acknowledging gaps in the FBR’s operational capacity, Mr Langrial emphasised the need for digitalisation to improve transparency and reduce human intervention. He also admitted the slow adoption of point-of-sale (POS) systems in the retail sector.

Finance Minister Aurangzeb also expressed dissatisfaction with the POS implementation and asked tax authorities to ensure its effectiveness. The minister was also upset with the complex tax return filing form. “I am a salaried individual and cannot file my tax return,” he said, adding that the FBR’s primary objective is to simplify the tax return form for the salaried class.

The FBR chairman assured the minister that the simplified return form would be implemented for the upcoming tax year.

The finance minister stressed that soon after assuming power, the current government introduced structural reforms in the national economy to put it on the path of sustainable development and growth, adding that the taxation reforms remained at the top of the reform agenda.

The government, he said, intended to enhance the tax-to-GDP ratio up to 13pc, which was currently estimated at 9pc to 10pc, adding that the increase in revenue collection would not only strengthen the fiscal side but also project the country’s image as a responsible state.

He said digitalisation was being introduced in the FBR to ensure transparency, minimise human intervention to control harassment and eliminate corrupt elements to boost revenue collection.

Automated risk management

The Senate Standing Committee on Finance discussed the use of automated risk management systems to regulate input tax claims, with Mr Langrial highlighting increased fraud as a concern.

He proposed developing algorithms in collaboration with banks to monitor financial transactions tied to individuals’ CNICs. Mr Aurangzeb noted that while banks already have systems in place, integrating additional data could improve the identification of suspicious transactions.

Restrictions on the purchase of immovable property and vehicle registration for non-filers were also reviewed, with Senator Anusha Rahman Khan proposing expanding these restrictions to include the sale and purchase of gold.

A major topic of discussion was the issue of counterfeit cigarettes and beverages. The FBR chairman explained that many cigarettes were not being stamped due to their exclusion from the sales tax regime, making them susceptible to counterfeiting.

He clarified that legally produced cigarettes were stamped to differentiate compliant products from non-compliant ones. He also expressed concerns about the track-and-trace system used to monitor product compliance, noting that the system’s integrity had been compromised, rendering it ineffective.

Published in Dawn, December 27th, 2024