95pc of households to remain unaffected by new tax measures, says FBR chief

ISLAMABAD: On Tuesday, Pakistan’s tax chief announced that 95 percent of households would remain unaffected by new legislation aimed at restricting economic transactions involving “ineligible” individuals and businesses, reported the Express Tribune.

Rashid Langrial, chairman of the Federal Board of Revenue (FBR), made the statement during a briefing for the Senate Standing Committee on Finance, adding the new measures could potentially boost tax collection by an additional Rs5 trillion over the next five years.

He said a significant portion of the population, estimated at 90 to 95 percent currently falls outside the tax net. Responding to a query from Senator Shibli Faraz, Langrial reiterated that the new legislation would not impact the majority of households and believed that these regulatory measures could enhance the FBR’s tax-to-GDP ratio from the current 10 percent to a potential 14 percent.

The Tax Laws Amendment Bill 2024 was recently introduced in the National Assembly, proposing to prevent ineligible individuals from making significant purchases, such as cars and properties, or even maintaining bank accounts. Furthermore, this bill grants the FBR the authority to freeze the bank accounts of unregistered taxpayers and confiscate their assets. Ineligible persons would face restrictions on cash withdrawals beyond a specified limit, while eligible taxpayers could make purchases up to 130 percent of their declared cash and asset value in their last tax return.

The FBR has already been empowered to disconnect essential services such as electricity and gas for non-compliant individuals and prohibit their international travel, though these powers have yet to be implemented.

Currently, there are only 62,000 registered sales tax entities in Pakistan, with just 42,000 actively participating. Langrial noted that even those within the system often do not fulfill their tax obligations.

The existing sales tax framework encourages individuals to remain outside the tax system, as businesses with sales of up to Rs10 million per year or Rs100 million per fiscal year are not legally obliged to register with the FBR. The government is seeking approval from the National Assembly to modify this threshold.

Langrial mentioned that technological advancements could help combat corruption within the FBR. Following the implementation of a face-less appraisal system, requests for additional documentation from importers decreased significantly from 2,000 to just 200 in one week, previously motivated more by extortion than by genuine compliance needs.

Minister of State for Finance, Ali Pervaiz Malik, indicated that higher sales tax rates correspond with increased tax evasion. The standard GST rate currently ranges between 18 percent and 25 percent, excluding further sales tax and additional charges.

Despite previous efforts—ranging from point-of-sale taxes to the Tajir Dost Scheme—the government’s initiatives have not met with success, according to Senator Mohsin Aziz, who estimated that 5 to 7 million people could be impacted by the new legislation.

The government has not eliminated the category of non-filers nor revoked the 10th schedule of the Income Tax Ordinance, which imposes higher rates on non-filers. Instead, a new classification for eligible individuals has been proposed, requiring individuals to have filed tax returns for the prior year and demonstrated sufficient resources.