New tax law

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The government has formalised some of its tax reforms by passing the Income Tax (Amendment) Bill, 2024, which is basically identical to the recent ordinance which was derided by the opposition and industry groups. The bill, like the ordinance, aims to tackle the complexities faced by taxpayers, especially regarding higher tax rates imposed on income derived from federal government securities.

It also prohibits non-filers from most banking activities including opening accounts; bars immovable property transfers by non-filers; restricts non-filers from buying any vehicle, except for tractors, with an engine over 800cc; and most controversially, grants FBR officials the authority to freeze non-filers' bank accounts and seize their properties.

The property seizure clause has drawn ire, especially because critics say it could allow FBR officials to punish people for failing to file returns even if they don't actually owe taxes. It also hammers home the government's lack of interest in cultivating a culture of compliance rather than one of fear. Even in the case of the other new restrictions, questions over transparency are at the forefront.

The anger of industry groups, though somewhat misplaced, is still a reflection of the fact that the government is struggling to maintain public trust. Indeed, if it is to silence its critics, the government will have to ensure careful implementation and monitoring that strikes a balance between effective enforcement and fair treatment of citizens.

Other objectives of the amendment include rationalising the tax structure concerning business income, particularly for banking companies. By addressing these pressing issues, the government is taking a necessary step toward creating a more equitable tax framework that encourages compliance while still generating much-needed revenue for public expenditure.

With a reported shortfall of Rs196 billion in tax collection during the first four months of the fiscal year, the need for effective revenue generation mechanisms has never been more apparent.