Tax Returns to Declare Family Members and Source of Funds Information

In a significant shift in taxation policies, a new law imposes stricter conditions on non-filers and filers alike. Under this law, non-filers will no longer be able to sell or make purchases of significant value, and filers must now adhere to three stringent conditions before being eligible to purchase assets. These changes reflect the Federal Board of Revenue’s (FBR) intensified efforts to tighten tax compliance and expand the tax net. Let’s explore what this means and how it impacts you.

Elimination of the “Filer” Concept

The term “filer” is being replaced with “eligible.” This means that even if you file tax returns, your eligibility to purchase assets or properties depends on meeting additional criteria. Filing a tax return alone is no longer sufficient—eligibility now hinges on meeting specific requirements.

Condition 1: Disclosure of Immediate Family Members

Filers are now required to disclose comprehensive details of their immediate family members in their tax returns. This includes:

Parents: Names and identification details of parents.

Spouse: Complete information about the spouse.

Children: Names and ages of dependent children below 25 years. If a child is above 25 years, clarity on their auto-registration as taxpayers is awaited.

Unmarried or Divorced Daughters: Details must also be provided.

Special Needs Children: All relevant information must be mentioned.

This condition aims to enhance transparency and prevent misuse of familial transactions to obscure taxable income or asset transfers. Previously, individuals often transferred gifts or funds to family members to avoid tax scrutiny. Now, all such transactions will be traceable within the same tax framework.

Condition 2: Proof of Sufficient Resources

Filers must demonstrate that they have sufficient resources in their declared tax returns to justify any purchase. For example:

If you filed a return for the tax year ending June 30, 2024, any purchase made in the following months (July 2024–December 2024) must correspond to the funds declared in that return.

The FBR now requires a detailed breakdown of cash or assets available as of the end of the tax year.

Additionally, a cap has been introduced: you cannot purchase assets worth more than 130% of your declared funds. For example, if your bank balance on June 30, 2024, was PKR 1 million, you can purchase assets worth up to PKR 1.3 million within the subsequent months. Anything beyond this limit will not be processed unless additional income is properly documented and reported.

A new online form will be introduced, similar to the existing 7E form, where filers must explain the source of additional income or funds used for purchases. This document will be mandatory for transactions with property departments, vehicle manufacturers, or land societies.

Condition 3: Mandatory Banking Channel for Transactions Over PKR 5 Million

Filers making property or asset purchases worth more than PKR 5 million must now process payments exclusively through banking channels.

Cash transactions for such purchases are prohibited and subject to penalties.

In many cases, transactions not routed through banks will be outright rejected.

This measure aims to prevent undocumented wealth circulation and ensure transparency in high-value transactions.

Implications of These Changes

The new conditions create a level playing field by holding filers accountable for justifying their purchases while disallowing non-filers from participating in significant economic activities. These changes aim to reduce tax evasion, expand the tax base, and increase government revenues.

For non-filers:

They face complete restrictions on high-value transactions, encouraging them to register as filers.

For filers:

Enhanced scrutiny and requirements for transparency in transactions.

An opportunity to save on taxes, as compliance ensures lower deduction rates on profits (15% instead of 30%).

However, the new measures are also likely to be time-consuming. The added documentation and verification processes may delay transactions, particularly for property or high-value purchases.

Key Takeaways for Individuals

1. File Your Tax Returns: If you’re a non-filer, become compliant to avoid being locked out of key financial activities.
2. Document Everything: As a filer, maintain accurate records of your income, expenditures, and family details to ensure smooth compliance.
3. Use Banking Channels: For any significant transaction, always use traceable banking methods to avoid penalties or rejection.
4. Understand the 130% Rule: Ensure that your purchases align with declared resources to avoid complications.
5. Stay Updated: As these laws mature, stay informed about updates or clarifications from the FBR.

A Step Towards Transparency

These reforms, though stringent, represent a step toward greater financial accountability and transparency. While they impose stricter controls, they also incentivize compliance and discourage unregulated financial practices. Over time, these measures may contribute to a more robust tax system and a fairer economic environment.

If you have further questions or suggestions, feel free to share them. Let’s continue to learn and navigate these changes together!