Govt plans to end non-filer category to curb tax dodgers

ISLAMABAD: Pakistan’s government has agreed to abolish the “non-filer” category, requiring all transactions to go through banking channels to curb cash flows.

Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial stated that non-filing is a fraudulent method and will be eliminated. “We must do away with the concept of non-filers. There is agreement to eliminate this idea,” he added.

The FBR will generate additional data to track financial transactions and categorize property transactions as eligible or ineligible.

Industry representatives suggested comprehensive mapping of the manufacturing landscape and distinguishing between compliant and non-compliant taxpayers.

Compliant taxpayers will receive benefits, while non-compliant ones will face disincentives. The FBR plans to establish digital interventions, cap cash cheque issuance, and report transactions exceeding declared income thresholds.

The income tax returns data processed by the Federal Board of Revenue (FBR) disclosed that Pakistan’s middle-income group taxpayers were 94% compliant compared to the 29% compliance ratio among the 1% richest Pakistanis.

The chairman said that out of the richest 1% workforce, comprising 670,000 individuals, only 230,000 filed their returns and accurately disclosed their incomes.

In addition, out of the Rs1.32 trillion income tax gap in the category of individuals, Rs1.2 trillion short payments were by Pakistan’s richest 1% of people, Contrary to this, the poor are the most compliant persons with a 94% compliance rate, said the chairman.

The reforms aim to address the tax gap across 20 sectors, with the textile sector having the largest gap of Rs700 billion.

However, textile association representatives disputed the FBR’s calculations. Businesspeople emphasized the need for proper implementation of current legislation and effective communication of changes to citizens.

Earlier, the plan was to only ban the purchase of assets by the non-filers. But now the government would delete the definitions of non-filers, and later abolish the schedule 10th from the Income Tax Ordinance.

Schedule 10th provides double withholding tax rates for the non-filers on undertaking various transactions compared to the standard rates. “The FBR has not used the data mines available to it, thus, it is now moving towards this new plan”, said Ali Pervaiz Malik, the minister of state for finance.

Gradually, 15 types of transactions by non-filers will be banned, including non-religious travel, said the FBR chairman. “You cannot create your currency by issuing cheques as an alternative to cash, thus, Rs30 million annual limits on cash withdrawals are being proposed,” Langrial stated.

The FBR’s transformation plan seeks to increase tax revenue and reduce the cash economy.

With the support of Minister of State for Finance and Revenue Ali Pervez and IRS Member Policy Dr. Hamid Ateeq Sarwar, the FBR is determined to implement these changes to improve Pakistan’s tax system.