ByThe Federal Board of Revenue (FBR) of Pakistan has implemented a focused action plan to address non-compliance among individuals earning substantial profits from bank deposits. This plan, which targets those who earn more than PKR 1.3 million annually in bank profit, emphasizes the importance of filing tax returns and aims to broaden the tax net.
Background of the Action Plan
FBR has collected detailed data on 4.9 million non-filers by consolidating information from various sources, including NADRA, banks, excise and taxation departments, property records, and foreign travel logs. The purpose is to identify individuals who are earning significant profits, withdrawing substantial amounts of cash, or purchasing high-value assets but are not filing their tax returns.
How FBR Identifies Taxable Individuals
The collaboration between banks and FBR allows the authority to access detailed records of customers’ earnings and transactions. For instance, the profits accrued in bank accounts are reported to FBR. If the annual profit surpasses PKR 1.3 million, it implies that the account holder has a principal deposit of around PKR 65 million, assuming an average annual return rate of 20%. This information enables FBR to send targeted tax notices to such individuals.
What This Means for Individuals
Filing Tax Returns Becomes Essential
If you are earning over PKR 1.3 million in bank profit annually and are not filing tax returns, you will soon receive a notice from FBR. Filing your tax return is no longer optional—it is a legal requirement for individuals in this income category. Failure to comply can lead to legal action as stipulated under tax laws.
Incentives for Becoming a Filer
For non-filers, banks currently deduct tax on profits at a higher rate of 30%. Filers, on the other hand, benefit from a reduced withholding tax rate of 15%. This presents a significant financial incentive for individuals to regularize their tax status. For instance, on a profit of PKR 1.3 million, a filer would save approximately PKR 195,000 in taxes annually.
Avoiding Legal Consequences
Ignoring FBR’s notices can result in penalties or further legal complications. FBR’s increased access to data and its commitment to enforcing tax compliance mean that evasion is more difficult than ever.
Steps Individuals Should Take
File Tax Returns Proactively
If you fall under this category, filing your tax return before receiving a notice is advisable. This not only demonstrates compliance but also helps you avoid legal hassles.
Seek Professional Advice
Consult a tax advisor or accountant to ensure accurate filing and to take advantage of tax benefits available to filers.
Stay Updated
Keep track of FBR’s announcements and ensure that you comply with any new requirements or deadlines.
Implications of FBR’s Initiative
Strengthening the Tax Net
By targeting high-earning non-filers, FBR seeks to expand Pakistan’s tax net. This approach ensures that individuals benefiting from significant income streams contribute their fair share to national revenue.
Impact on Non-Compliant Individuals
The initiative will particularly affect those who have been evading taxes despite earning substantial income. For many, this could be a wake-up call to become tax-compliant and avoid the repercussions of non-compliance.
Encouraging Financial Transparency
The plan emphasizes the importance of financial transparency and accountability. It serves as a reminder that modern tax systems increasingly rely on data-sharing mechanisms to monitor financial activities.
Potential Challenges for FBR
While this plan is ambitious, its success depends on effective implementation. Challenges such as managing the volume of notices, ensuring accurate data analysis, and addressing taxpayers’ concerns must be navigated to achieve the desired results.
