Cabinet rejects ban on rich purchases

Cars, property, stock curbs for ineligible persons shelved despite IMF commitment

ISLAMABAD:

The federal cabinet has rejected a proposal to immediately ban purchases of cars, investment in stocks, cash withdrawals and buying properties beyond a certain value by persons having insufficient declared resources to support these purchases.

The move underscores a weakened political will to go after these rich people and is also in breach of a commitment given to the International Monetary Fund (IMF) to ban these economic transactions from July 1 by ineligible persons. The finance ministry had tabled the summary in the special cabinet meeting held on June 12 to approve the new fiscal year's budget. But the Cabinet Division shared the cabinet's decision on July 17. It showed that the federal cabinet had rejected the summary, said the officials.

According to the federal cabinet's decision, the cabinet approved the new tax measures for fiscal year 2026-27 except for the proposal on para 107 of the summary relating to the activation of restrictions on certain economic transactions. Para 107 was related to economic restrictions enacted through section 114C.

The finance ministry had proposed that the federal government may approve July 1, 2026, as the activation date of the restriction under section 114C of the Income Tax Ordinance. In early 2025, the Federal Board of Revenue (FBR) had proposed amendments in tax laws to ban the purchase of cars, cash withdrawals, investment in stocks and buying properties by persons having insufficient declared resources to buy these assets.

The FBR wanted to give effect to these measures from July 2025, but the National Assembly deferred implementation until the FBR developed an efficient digital mechanism to block these transactions. The matter was again deferred to July this year.

According to the law, which is dormant due to absence of the cabinet's approval to make it operational, an ineligible person cannot buy a car having value of over Rs7 million and a property of over Rs100 million. The ineligible person cannot make investment in stocks of over Rs50 million value and cannot withdraw cash of over Rs100 million from all bank accounts. The eligible person is the one who has declared sufficient liquid resources in his income tax returns to justify these purchases.

The cabinet had been informed that section 114C was introduced in the Finance Act, 2025, which provides for restrictions on certain economic transactions including purchase of immovable property, vehicles, banking transactions and investment in securities if the person is not eligible to make such transactions.

The secretary cabinet did not respond to a question regarding the rationale for rejecting the proposal by the cabinet.

A tax official claimed that the Cabinet Division said that a separate summary should be moved to seek the approval of the cabinet. He said that another summary had been forwarded to the Prime Minister's Office to get a waiver from first presenting the matter to the cabinet committee on legislative cases. He said once the waiver is given, a summary might then be moved for approval of the cabinet through circulation to impose economic restrictions.

The Director General Tax Policy Office of the finance ministry did not respond to a question about the implications of the cabinet's decision for the IMF programme.

At the time of seeking the IMF's consent for reducing the withholding tax rates on property by 50%, the government had assured the IMF that the economic restrictions would be imposed from July 1 so that the benefit is not availed by those rich persons who did not have declared resources to buy these assets, said the officials.

The FBR spokesperson also did not comment on this article.

In February 2025, the National Assembly Standing Committee on Finance adopted a report of its sub-committee, which had recommended "deferring the proposed new section 114C until the FBR finalised the necessary technological changes in its online systems and applications". The FBR officials said that an online system has been developed for banning property transactions, but it was difficult to block investments in stocks. This suggests that the law had been enacted without doing the needed homework. The National Assembly had also relaxed the conditions by expanding the definition of the eligible persons and the list of the assets that can be used to justify the purchase.

There were two significant amendments by the National Assembly. According to a change in section 114C, the new law cannot be implemented without determining the value threshold by the federal government. The property transactions conducted by common citizens and the lower- and middle-income class, particularly first-time buyers or those purchasing their primary residential property, are not impacted by the new legislation. The definition of the eligible persons had also been expanded by including the immediate family members' assets to justify the purchase.

The definition of "sufficient resources" has also been enlarged by adding local and foreign currencies, fair market value of gold, net realised value of stocks, bonds, receivables or any other cash equivalent assets as may be prescribed. The barter transactions have also been allowed to settle the value of one plot against another plot.

The non-resident Pakistanis and the listed companies are exempted from filing the additional information disclosure. Despite these relaxations, the government has not been able to make the law operational.