Squeezing non-filers

The government's new restrictions on non-filers spark debate.

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The government's latest round of restrictions on non-filers of tax returns has stirred considerable debate. With the introduction of the Tax Law Amendment Bill 2024-25 in the National Assembly, the government is clearly signaling its commitment to enhancing tax compliance. However, while the need for a robust tax framework cannot be overstated, the approach being taken raises questions about its fairness and effectiveness.

The proposed amendments prohibit non-filers from purchasing vehicles over 800cc, acquiring property beyond a specified limit, and engaging in significant stock transactions. They would also face restrictions on banking activities, with accounts frozen and property transfers blocked until they comply with registration requirements. Such measures might appear effective in immediate terms, but could create more public outrage among salaried individuals who are already paying their fair share through direct and indirect taxes, even if they have been careless or callous about filing their returns. Meanwhile, the wealthiest Pakistanis - especially those whose incomes are predominantly from non-salary sources and less documented economic sectors - continue to sidestep tax laws without fear of punishment, either because the tax machinery is unwilling or unable to go after them.

It is crucial to remember that a significant number of non-filers are not necessarily tax evaders by choice. Many are unaware of their obligations or overwhelmed by the tax process. The government must do more to educate citizens and simplify the registration processes to encourage compliance. Perhaps automatic registration and filling of tax returns for salaried individuals, coupled with nominal rewards for filing, rather than heavy penalties for not filing, could be a better approach.

The government will never be able to meet its tax-to-GDP ratio target if it continues with a soft, appeasing approach toward the people who have untaxed millions, while trying to fill the gap by squeezing the already overtaxed middle class, which is more akin to squeezing blood from a stone.