On 27th April 2018, Finance Minister Miftah Ismail presented the budget for fiscal year 2018-2019 during a session of the National Assembly. The detailed budget has created a lot of debate on the provisions made for both income tax filers and non-filers.
This budget proposal will be in effect from 1st July, 2018, after the Senate’s Standing Committee on Finance has reviewed and recommended changes to the final Finance Bill 2018. A number of changes have been proposed in the Senate, but the final Finance Bill hasn’t been drafted as of yet.
What this budget means for non-filers
The government has seriously penalised non-filers by prohibiting them from buying property worth PKR 4 million and above, while also making it difficult for them to purchase new vehicles. These new provisions have been introduced under Section 227C to ensure that no money which has been earned through illegal means, is parked in assets such as real estate.
Under this new provision, any person who isn’t a tax filer will not be entitled to processing of any application a) for booking, registration or purchase of a newly manufactured or imported vehicle, b) from any authority responsible for registration, recording, or attesting immovable property.
It comes as no surprise that concrete steps are being taken regarding sectors which have experienced some of the highest activity in the last two years. With these reforms, it is being ensured that those who carry out transactions in real estate are a part of the Federal Board of Revenue’s (FBR) Active Taxpayers’ List (ATL). It has become increasingly important to incentivise the filers, while penalising the non-filers.
The government has realised that it needs to broaden the tax difference between filers and non-filers. Resultantly, in this new budget, special emphasis has been laid on ensuring that any shortfall in revenue by reducing tax rates for filers is compensated by increasing the tax rates for non-filers.
- The Withholding Tax rates on sale of goods for non-filers have been increased from 7% to 8% in case of a company, and from 7.75% to 9% in non-corporate cases.
- Non-filers will also be unable to make any cash deposits to their foreign currency accounts. This means that investment abroad for non-income-tax-filers will also not be possible.
All of these measures have been introduced to increase the number of people who file their taxes in a bid to understand and keep a track of the sources of money for most people in the economy.
Additionally, it has also been proposed that a nominal tax rate would be imposed on those earnings between PKR 0.4 million and PKR 0.8 million per annum, PKR 2,000 on those earnings between PKR 0.8 million and PKR 1.2 million. This will help broaden the economy’s tax base.
What is the importance of income-tax filing?
For any economy, tax filing is really important. Apart from serving as a proof of residence, and ensuring smooth processing of loans and credit card applications, visa processing, claims on additional deductions, and avoiding additional interest rates and penalties, this also provides money for public sector development programs and helps determine the size of an economy.
With declared assets, the government is more effective in levying taxes and is therefore able to increase its tax base.
Pakistan is a country of over 207.7 million people, however, only 1.26 million people filed their income tax returns during the fiscal year 2017-2018. In order to get more people to file their income tax returns, the government has decided that it now needs to penalise non-filers rather than incentivising income tax filing which it has previously tried to do.
Do you think that with these measures, more people will step forward and start filing their taxes? Give your feedback in the comments below!
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