ISLAMABAD: The Senate Standing Committee on Finance and Revenue, on Thursday, unanimously, recommended the “Tax Laws (Amendment Bill), 2024” which envisaged to further amend certain tax laws including restrictions on certain economic transactions to tighten the government’s grip on non-filers and broaden the tax net.
The committee met under the chairmanship of Saleem Mandviwalla, which focused on key amendments aimed at improving tax compliance and addressing loopholes within the tax system.
Rashid Langrial, chairman Federal Board of Revenue (FBR) said that 95 percent households would not be affected by the proposed legislation to ban economic transactions of ineligible people and businesses rather these measures would help increase tax collection, as around Rs1.6 trillion missing gap exists in five percent category compared to Rs140 billion in the rest of the 90-95 percent.
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He admitted that there is widespread under-declaration in income tax returns which does not commensurate with the lifestyle of many persons who buy immovable and movable properties, operate current accounts, make investments and carryout businesses without any hindrance.
Income tax amendments under Section 114C, is aimed at restriction on economic transactions done by certain persons without explained sources, limiting expensive lifestyle, investment sources uncles have explained sources, businesses, sole proprietorship, AOP and companies; limiting scope of operations of businesses if they have do not have explained sources of investment.
On economic restrictions for certain individuals, the FBR chairman informed that restrictions have been imposed on purchase of immovable property, and motor vehicle registrations. While Senator Anusha Rahman Khan proposed expanding these restrictions to include sale and purchase of gold.
The FBR chairman elaborated on Sub-Section (4) of Section 8B, which allows the use of a data-driven automated risk management system to regulate input tax claims. He emphasised the FBR’s willingness to forego certain input tax claims, citing increased fraud as a major concern. He noted that while registered entities are traceable, unregistered entities create a significant loophole in the system. The chairman suggested that the matter be thoroughly reviewed by the FBR for further action.
The committee was informed that the rationale behind the insertion of new Section 114C is to enhance compliance, increase the number of return filers and to encourage true and correct declaration by taxpayers, the present ineffective system of filers and non-filers categories of person will get substituted with a more robust and punitive classification into eligible and ineligible persons.
The ineligible person will not be able to transact certain economic transactions (certain basic exclusion applies).
An ineligible person will not be able to transact economic transactions unless he became an eligible person. The eligible person is one who had filed an income tax return for the last preceding tax year along with an online filing of statement of investment and expenditure. Moreover, eligible person must have sufficient resources in his wealth statement (130 percent) of cash and cash equivalent.
The proposed amendment stated restriction on economic transactions by certain persons. (1) notwithstanding anything contained in any law for the time being in force, —
(a) any application, by any ineligible purchase or registration of a motor filer vehicle, shall not be accepted or processed by any manufacturer of a motor vehicle or vehicle with registering authority of Excise and Taxation Department, as the case may be;
(b) any application or request by any ineligible person, to any authority responsible for registering, recording or attesting transfer of any immovable property, more than such value in aggregate in a tax year as may be notified by the Board from time to time, shall not be accepted or able processed by such authority;
(c) any person, authorized to sell securities including debt securities or units of mutual funds including a person authorized to open and maintain an account or clear such transactions, shall not sell, open an account or clear sale of securities, mutual funds to an ineligible person being an individual or an association of persons;
(d) a banking company shall - (i) not open or maintain an already opened current or a saving bank or investor portfolio securities account, except Asaan account, in the name of such persons as may be notified by the Board, (ii) not allow cash withdrawal from any of the bank accounts of any person, exceeding the amount as may be notified by the Board from time to time; (2) The provisions of sub-section (1) shall not apply to (a) purchase of rickshaws or motorcycle rickshaws or tractors; (b) purchase of a pick-up vehicle having engine capacity up to 800cc; (c) purchase of such motor vehicles other than those mentioned in clauses (a) and (b), trucks and buses subject to restrictions and limitations as may be notified by the Board from time to time.
Regarding income tax amendments— insertion of new Section 175AA, the committee was informed that the purpose is to detect and take corrective measure against under declaration of income/sales by fetching taxpayers banking system data and match with the declaration filed with FBR.
The FBR and banks will agree on an algorithm for setting banking transaction thresholds based on declared turnover and income of the person in the previous years against each CNIC.
The CNIC-based banking transaction threshold will be shared with the central depository of the banking system such transactions will be reported to the FBR. The FBR will take legal action against such persons.
Regarding the federal excise duty (FED) amendment, the committee was informed that Sections26 and 27 is regarding seizing duty and sales tax unpaid goods in very part of country. Authorising federal and provincial authorities to seize and destroy such unpaid goods.
The committee also discussed the exchange of financial information by banks, with a focus on establishing transaction thresholds based on individuals’ declared income and turnover.
The FBR chairman proposed developing an algorithm in collaboration with banks to monitor transactions, with thresholds tied to individuals’ CNICs. The Minister for Finance and Revenue noted that while banks already have systems in place, integrating additional data could improve the identification of suspicious transactions.
Furthermore, the committee discussed the appointment of auditors under Section 222 of the Income Tax Ordinance, 2001, either through contractual hiring or third-party engagement, to ensure proper implementation of tax provisions. Additionally, the need for greater transparency in the disclosure of information by public servants was highlighted.
A major topic of discussion was the issue of counterfeit cigarettes and beverages. The FBR chairman explained that many cigarettes are not being stamped due to their exclusion from the sales tax regime, making them susceptible to counterfeiting. He clarified that legally produced cigarettes are stamped to differentiate compliant products from non-compliant ones. He further emphasised that removing cigarettes from the sales tax regime would categorize them as counterfeit.
The chairman also expressed concerns about the track-and-trace system used to monitor product compliance, noting that the system’s integrity had been compromised, rendering it ineffective. The committee concluded the meeting by proposing several recommendations on the bill and decided that these issues will be deliberated in upcoming meetings for through examination.
The meeting was attended by senators, Anusha Rahman Ahmad Khan, Shahzaib Durrani, Syed Shibli Faraz, and Mohsin Aziz, alongside the Minister for Finance and Revenue, the Minister of State for Finance and Revenue, the FBR chairman, and senior officials from relevant departments.
Copyright Business Recorder, 2024
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