EDITORIAL: The government is proposing the Tax Laws (Amendment) Bill, 2024, which introduces a new category of “ineligible person” with restrictions on buying real estate, cars, bank accounts, and other economic activities. This proposed law has caused a stir among stakeholders.
While the Federal Board of Revenue (FBR) and ministers in the finance division are advocating for it, the National Assembly panel is critically evaluating the proposal.
The business community remains divided — some support the bill, while others are concerned about its broader economic implications.
In principle, there should not be any category for non-tax filers. However, this concept was fostered by authorities, particularly during the Pakistan Muslim League-Nawaz (PML-N) government. The system was introduced in the 1990s and extensively used in the 2010s to collect taxes through higher withholding tax (WHT) rates for non-filers across various categories.
This approach is essentially an implicit amnesty, allowing individuals to evade comprehensive taxation by paying nominally excess amounts as penalty for not adhering to the law. It is important to note that now the PML-N government is attempting to revisit this approach.
However, under the proposed amendment, the non-filer category will remain intact, with higher tax rates unchanged. Instead, the bill introduces a new category titled “ineligible person,” imposing restrictions on certain economic and business transactions. Unfortunately, the proposal lacks clarity in both thought and anticipated outcomes.
The underlying issue is that the FBR is reluctant to forgo substantial revenue collected from non-filers while simultaneously attempting to alienate them. The idiom “Don’t bite off more than you can chew” aptly describes the situation. The amendment is unlikely to lead to any immediate revenue boost.
Instead, it risks empowering corrupt elements in society, including tax evaders and their accomplices within the FBR. The misuse of authority is expected to rise, particularly as FBR officers are pressured to generate additional tax demands. The prevailing assumption treats every individual and business entity as a tax evader, making it the FBR officer’s duty to extract more tax than paid.
FBR officials face immense pressure to meet high collection targets, often resorting to questionable tactics to achieve them. If an officer concludes that a taxpayer is fully compliant, their superiors may view this as incompetence or corruption, resulting in adverse career repercussions.
This culture naturally encourages the creation of frivolous and trumped up demands that fail to withstand the test in appeals made at legal forums.
Legal reforms must be balanced. FBR officials should also be held accountable and penalised in cases of wrongdoing. One-sided measures will only lead to greater extortion and abuse of power within the FBR. Furthermore, such policies are unlikely to significantly increase tax collection.
As the FBR chairman has admitted, tax collection levels in 2024 remain comparable to those in 2008 or 2016 despite significant increases in income and sales tax rates. This stagnant growth has driven more individuals and businesses out of the formal tax system, as evidenced by a sharp rise in currency circulation over the last decade.
Meanwhile, tax collection from under-taxed or untaxed sectors continues to remain low. For example, the real estate market has been severely impacted by higher taxes and valuations, resulting in reduced activity and lower tax revenue from the sector. In response, the FBR has discreetly revised valuation tables downward in some areas where transactions have shown signs of recovery.
Real estate remains a significant avenue for parking untaxed money. While the FBR seeks to curb this practice, it simultaneously makes life more difficult for others. There is concern that these new, draconian measures could lead to capital flight, a phenomenon already contributing to currency instability in 2022 and 2023.
Such laws may have far-reaching economic implications that have not been adequately considered. Therefore, the focus should be on enhancing the FBR’s capacity and addressing corruption before introducing measures that infringe on citizens’ basic rights. Without these foundational improvements, the proposed law risks doing more harm than good.
Copyright Business Recorder, 2025
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