In a bid to bolster its revenue streams and ensure greater tax compliance, the Pakistani government is gearing up to introduce significant changes to its tax laws in the upcoming Budget 2024-25. These changes, aimed primarily at non-filers of income tax returns, are poised to have far-reaching implications on financial transactions and revenue generation for the fiscal year ahead.
Tightening the Noose on Non-Filers
Increased Costs of Financial Transactions
The government’s strategy involves imposing higher taxes on various financial transactions to deter non-filers from evading their tax obligations. Among the proposed changes is an increase in taxes on cash withdrawals from banks. Discussions with the International Monetary Fund (IMF) have paved the way for the introduction of an advance tax on cash withdrawals, potentially generating an estimated Rs15 billion annually.
Withholding Tax Revisions
To further dissuade non-filers, the Federal Board of Revenue (FBR) has proposed raising the withholding tax on cash withdrawals from 0.6% to 0.9%. This adjustment could yield an additional Rs15 to Rs20 billion in revenue. Moreover, non-filers making withdrawals exceeding Rs50,000 in a single day through credit cards or ATMs will face a 0.6% withholding tax.
Addressing Tax Evasion Loopholes
Crackdown on Non-Filers
Efforts to crack down on non-filers are already underway, with the government aiming to penalize those who evade their tax obligations. One key aspect of this crackdown involves penalizing non-filers for supplying goods to unregistered persons. Additionally, the government seeks to address loopholes in the personal income tax structure that allow for income characterization to minimize tax burdens.
Imposition of Higher Taxes
The government is considering imposing higher taxes on income from non-essential and luxury items, signaling a broader effort to increase revenue streams and ensure tax compliance across various sectors.
