Government Likely To Impose Additional Taxes On Non-filers

The government is planning significant changes to tax laws in the upcoming Finance Bill 2024, aiming to increase the cost of financial transactions for non-filers of income tax returns, thereby generating an additional Rs300 to Rs400 billion in revenue for the 2024-25 fiscal year.

Enhanced Powers for Directorate General of Digital Invoicing

The Bill will enhance the powers of the Directorate General of Digital Invoicing, Federal Board of Revenue (FBR), to document the supply chains of major businesses.

Potential Increase in Taxes on Cash Withdrawals

Local reports suggest that taxes on cash withdrawals from banks could be increased, a proposal discussed during negotiations between Pakistani authorities and the International Monetary Fund (IMF). It is estimated that over Rs15 billion could be collected annually through the advance tax on cash withdrawals. There may also be increased taxes on income from non-essential and luxury items in the upcoming budget.

Progress with IMF Discussions

Last week, the IMF reported significant progress in discussions with Pakistan regarding financial support and reforms, with further discussions planned to finalize the agreement.

Turnover-Based Registration and Overseas Vendor Registration

The government might introduce a single turnover-based registration threshold for all businesses, replacing previous discriminatory practices, and could implement an overseas vendor registration regime requiring foreign suppliers to register and collect federal sales tax.

Duty on Input Tax Claimants and Penalties for Non-Compliance

Additionally, the government plans to impose a duty on input tax claimants to ensure they are not involved in fraud and to report suspicious transactions, with penalties for non-compliance.

Increase in Withholding Tax on Cash Withdrawals by Non-Filers

The FBR has proposed raising the withholding tax on cash withdrawals by non-filers from 0.6% to 0.9%, which is expected to generate Rs15 to Rs20 billion in extra revenue. Non-filers withdrawing more than Rs50,000 in a single day through credit cards or ATMs will continue to face a 0.6% withholding tax.

Measures to Penalize Non-Filers and Address Tax Structure Issues

The government aims to make supplies to unregistered persons more costly and penalize non-filers through these measures, addressing issues in the current personal income tax structure that incentivizes income characterization to minimise tax burdens.

Government Efforts to Tighten Compliance for Non-Filers

In its ongoing effort to tighten the noose around non-filers, the government has already ordered, Pakistan Telecommunication Authority, and telecom operators to block 506,671 mobile phone SIMs of non-filers. This decision, supported by the Islamabad High Court, is part of a broader strategy to ensure compliance with tax laws and broaden the tax base.

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