Income tax returns: Government mulls punitive measures against non-filers

Proposals include cancelling CNICs, levying additional withholding tax


Shahbaz Rana May 23, 2016
Federal Board of Revenue. PHOTO: AFP

ISLAMABAD: The federal government is considering punitive tax measures against non-filers of income tax returns in the federal budget for fiscal year 2016-17, including suspension of computerised national identity cards in a phased manner and levy of five more withholding taxes.

In the words of Finance Minister Ishaq Dar, the new measures would make the “life of non-filers of income tax returns miserable.” But at the same time, it would prevent the government from claiming a ‘tax-free budget’ for 2016-17.

The withholding tax (WHT) proposals, if approved by Prime Minister Nawaz Sharif, will help generate over Rs15 billion in additional revenue besides giving extraordinary judicial, executive and administrative powers to taxmen, said sources in the finance ministry.



However, during a day-long meeting on Sunday, Dar did not agree to some of these proposals, particularly on taxing the members of elite clubs and treating some expenses as income.

About six new WHT proposals are under consideration, said sources. Among the most stringent proposals is suspension of CNICs of non-filers, acquiring authority to open transactions of non-filers beyond the statutory limit of five years and treating expenses incurred on creating assets by using cash as income.

However, these proposals would further increase reliance of the Federal Board of Revenue on WHT that theoretically are income taxes but for all practical purposes are indirect taxes.

Currently, the FBR is collecting 67 types of withholding taxes. It collected Rs575 billion under these heads from July through March of this fiscal year, which was alarmingly 71% of total income tax collection of Rs809 billion during this period. The WHT is causing serious distortions in direct tax administration.

CNIC suspension

The FBR has proposed that the CNICs of non-filers of the income tax returns may be suspended in a phased manner. However, sources said the CNIC suspension would require an amendment in the National Database and Registration Authority Act.

Despite tall claims of broadening the tax base, this year, the numbers of income tax return filers dropped by 18.4% to 980,000, according to the FBR statistics.  While addressing a pre-budget seminar on Saturday, Finance Minister Ishaq Dar said the new budget would make life miserable for non-filers of income tax returns.

WHT on leasing of vehicles

The FBR has proposed 2% WHT to be levied on cars being leased by banks and leasing companies, which will help generate Rs3 billion.  It has estimated that annually 100,000 cars are leased by the banks. Currently, the FBR charges the WHT on purchase, registration and transfer of vehicles and 2% tax would be yet another levy on the consumers.

Penalising withholding agents

Due to heavy reliance on the WHT, almost every business entity, manufacturer and trader is the withholding agent of the FBR. Now the FBR has decided to punish these people for not collecting taxes on the bureau’s behalf. It would treat their expenditures as income, if they did not deduct the WHT and the move will raise Rs4 billion in revenues.

5% tax with tax return

In yet another punitive measure, the FBR has proposed that the income tax returns filed by people after provisional assessment by the tax authorities be accompanied by 5% of the tax demand and the return should be subject to compulsory audit. It is estimated it will generate Rs2 billion worth of additional revenue.

Over the last two and half years, the FBR issued about 300,000 tax notices to non-filers. Some of them filed their returns and paid nominal taxes but majority of them either ignored the notice or filed the return but paid no tax. The FBR makes provisional assessment when a person is either not filing the return or not responding to tax notice.

Treating expense as income

According to yet another aggressive measure, the FBR has proposed that if a person buys an asset on cash payment valuing more than Rs500,000, his expenditure will be treated as income. If the asset is bought through banking channel, the expense will not be treated as income. After levy of tax on banking transactions, people have started keeping cash with them instead of depositing in the banks.

Open past transactions

Currently, the FBR can inquire about up to five-year-old transaction and can tax unexplained income up to this period. However, the FBR has proposed that there should be no limitation for taxing unexplained assets of non-filers and transactions up to year 2002 can be opened. The people named in the Panama leaks cannot be touched by the FBR, if they completed the transactions before 2010.

WHT on members of clubs

The FBR has proposed yet another new tax. It has proposed to collect Rs6,000 annually from the members of clubs, gymkhanas and hotels to raise Rs600 million in revenue. Currently, there are around 100,000 people members of these clubs.

Tax on prize bonds

The FBR has also proposed to introduce, for the first time, 20% tax on non-filers who win prize bonds and the move will generate Rs1.5 billion in revenues. The FBR insists that after levy of WHT on banking transactions, people have shifted their money into prize bonds.

WHT on gas consumption

The FBR has also proposed a new tax of collecting 5% WHT on giving commercial gas connections for the sake of just Rs1.2 billion. It insists that there is mushroom growth of restaurants, hotels and bakeries and they are not paying taxes. The sources said the FBR people enjoy free meals in return of keeping their eyes closed.

WHT on compensations

The FBR is not ready to spare even those whose land and assets are acquired by the government for certain purposes and they are in return compensated. It has proposed to deduct 1% of the compensation in WHT to generate Rs1 billion.

Published in The Express Tribune, May 23rd, 2016.

COMMENTS (1)

H.A.Khan | 7 years ago | Reply FBR is over reliant on WHT and 70% plus direct taxes are collected through WHT regime. One seriously wonders what do over 16,000 officers and staff on Inland Revenue Services of FBR the whole year.....other than the obvious. There is need to seriously and urgently reform FBR otherwise the whole nation will keep on suffering due to dysfunctional FBR.
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