Restriction on Non Filers for Investment & Car Purchases

The Tax Laws (Amendment) Bill 2024 introduces transformative changes aimed at regulating economic transactions and enhancing tax compliance. Among its significant inclusions is Section 114C, titled “Restriction on Economic Transactions by Certain Persons.” This section imposes restrictions on economic activities of individuals or entities classified as “ineligible persons,” with an overarching goal of strengthening tax compliance and transparency. Below is a detailed examination of Section 114C and its implications.

Restriction on Economic Transactions

Motor Vehicle Transactions

Manufacturers and vehicle registering authorities are prohibited from accepting or processing applications from ineligible persons for booking, purchasing, or registering motor vehicles.

Immovable Property Transactions

Authorities responsible for registering, recording, or attesting property transfers are barred from processing requests from ineligible persons for transactions exceeding a value notified by the Federal Board of Revenue (FBR).

Securities and Mutual Funds

Entities authorized to sell securities, such as debt instruments or mutual fund units, are restricted from transacting with ineligible persons.

These restrictions extend to account openings and clearing of such transactions.

Banking Restrictions

Banking companies are prohibited from:

• • • Opening or maintaining current or savings accounts for ineligible persons, except for basic Asaan accounts.
    • Allowing cash withdrawals exceeding limits notified by the FBR.

Exemptions from Restrictions

The following transactions are exempt from the restrictions outlined in sub-section (1):

• Purchase of rickshaws, motorcycle rickshaws, or tractors.
• Purchase of pickup vehicles with engine capacities up to 800cc.
• Purchase of trucks, buses, or other vehicles specified under conditions notified by the FBR.
• Investments in securities within limits prescribed by the FBR.
• Transactions by non-residents or public companies (with limited exceptions).
• Transactions by individuals who:
  • File their tax returns for the most recent year.
  • Submit a “sources of investment and expenditure statement” disclosing the origin of funds used for transactions.

Definitions and Clarifications

Eligible Person

• • An individual, company, or association of persons who:
    • Filed a tax return for the preceding year.
    • Has sufficient resources in their wealth statement (for individuals) or financial statements (for companies).
  • Includes immediate family members of the individual, such as parents, spouse, children under 25, and dependents with long-term impairments.

Ineligible Person

• • Any individual or entity that does not meet the criteria of an eligible person.

Sources of Investment and Expenditure Statement

• • A declaration filed on the FBR portal detailing the sources of funds for the transaction.

Sufficient Resources

• • Defined as 130% of the cash and cash-equivalent assets declared in the latest wealth or financial statements.

Cash Equivalent Assets

• • To be prescribed by the FBR through notifications.

Implementation Mechanism

• The restrictions under Section 114C(1) will be implemented from a date specified by the FBR via notification in the official Gazette, with Federal Government approval.
• The declaration of sources of investment or expenditure will not be construed as the nature or source of income for other tax purposes, ensuring focused application of this provision.

Section 114C of the Tax Laws (Amendment) Bill 2024 is a pivotal step in regulating economic transactions to enhance tax compliance and transparency. By targeting high-value transactions and mandating declarations of investment sources, the provision seeks to integrate undocumented wealth into the formal economy. While the section imposes restrictions, its exemptions ensure inclusivity and fairness, balancing enforcement with economic participation. As the government rolls out these measures, stakeholders are encouraged to align their practices to meet the new requirements, fostering a culture of accountability and compliance in the taxation system.