Mohsin Siddiqui (Chief Reporter)
The Federal Board of Revenue (FBR) of Pakistan has taken a bold step towards tightening its enforcement measures against taxpayers who submit inaccurate or incomplete income tax returns
The new proposal, aimed at enhancing compliance, includes severe penalties such as imposing a fine of up to Rs 1,000,000, freezing of bank accounts, and restrictions on purchasing immovable properties and vehicles for those found guilty of such discrepancies.
This rigorous approach comes in the wake of an ongoing struggle to meet the ambitious tax collection target set for September 2024. According to sources, these measures are still under consideration and have not yet received final approval from the competent authorities. However, the intent behind them is clear: to clamp down on tax evasion and improve the overall integrity of the tax filing system in Pakistan.
The proposed enforcement actions are specifically targeted at existing filers who have previously submitted returns. The FBR aims to deter the practice of filing ‘Nil’ returns or declaring ‘Nil’ assets, which some taxpayers do to avoid higher rates of withholding tax applicable to non-filers. Dr. Ikram ul Haq, a leading tax expert, supports the FBR’s stance, highlighting that such filings could amount to perjury — making a false statement under oath.
Dr. Haq explains that the number of nil filers has been on the rise, a trend that is concerning given the heavy penalties already in place for non-compliance. Under Section 114(A) of the Income Tax Ordinance, the tax department has the authority to prosecute wrong declarants, and this can extend under Section 192 as well, providing the legal framework to enforce these strict measures.
Critics, however, argue that the severity of these proposed measures could backfire. Leading tax advisers are particularly worried about the potential for misuse and the unintended punishment of compliant taxpayers who might make innocent errors in their filings. They question whether such stringent penalties would serve as a true deterrent or merely add another layer of fear amongst honest filers.
The implications of these proposed measures extend beyond just the taxpayers to the broader economic environment. Freezing bank accounts and imposing heavy fines could have a ripple effect, potentially disrupting business operations and economic stability for those accused of filing errors. The fear of severe penalties might also deter potential new filers from voluntarily participating in the tax system, contrary to the FBR’s goal of expanding the tax base.
The enforcement measures were reportedly proposed by the FBR Member Inland Revenue (Operations) as a means to strengthen enforcement and address the issue of tax non-compliance more effectively. As these discussions continue, the business and taxpaying communities are keenly watching for the final decision, which could significantly impact the landscape of tax compliance in Pakistan.
Tax experts like Dr. Ikram ul Haq recommend that while it is essential to combat tax evasion, measures should be balanced to ensure they do not unjustly penalize compliant taxpayers or hinder economic activities. They suggest that the FBR should also focus on improving taxpayer education and providing more transparent and user-friendly filing processes to encourage voluntary compliance.
