Banking payment has been made must for asset purchase by the tax authorities in a move aimed at promoting transparency and curbing tax evasion.
The Federal Board of Revenue (FBR) has implemented changes to the Income Tax Ordinance, 2001, with the introduction of Section 75A.
This section, which came into effect through the Finance Act, 2021 amendments, mandates that buyers and sellers of assets conduct transactions exclusively through the banking channel.
Section 75A of the Income Tax Ordinance, 2001, explicitly states that no person shall purchase immovable property with a fair market value exceeding five million Rupees or any other asset with a fair market value exceeding one million Rupees, except through specific banking instruments. These include crossed cheques drawn on a bank, crossed demand drafts, crossed pay orders, or any other crossed banking instrument that indicates the transfer of funds from one bank account to another.
The provision underscores the government’s commitment to combating the informal economy, ensuring a transparent financial system, and fortifying tax collection mechanisms. By enforcing transactions through the banking channel, authorities aim to trace and monitor financial activities more effectively, leaving less room for tax evasion and undisclosed wealth.
In the case of immovable property, the fair market value is defined in Section 75A(2) as the value notified by the Board under sub-section (4) of section 68 or the value fixed by the provincial authority for stamp duty purposes, whichever is higher. This dual benchmarking ensures a comprehensive assessment of the property’s value, further strengthening the tax administration’s ability to capture accurate financial data.
Notably, if a transaction is not conducted in accordance with the stipulations in Section 75A(1), severe consequences await the parties involved. The asset in question will become ineligible for any allowance under sections 22, 23, 24, and 25 of the Income Tax Ordinance, 2001. Additionally, the amount involved in the non-compliant transaction will not be considered as a cost under section 76 of the ordinance, affecting the computation of any gains resulting from the subsequent sale of the asset.
This move by the FBR is a crucial step towards building a more robust and accountable financial system. It aligns with global trends where governments are adopting stringent measures to enhance tax compliance and ensure that all economic transactions are recorded and traceable.
However, it is essential to note that the implementation of such measures requires collaboration between the tax authorities and financial institutions. As this regulation unfolds, stakeholders, including banks and taxpayers, need to familiarize themselves with the new requirements to avoid any inadvertent non-compliance.
While these changes represent a positive stride towards a more transparent and accountable financial landscape, there may be challenges in the initial stages of adoption. The FBR, through its continuous efforts, aims to refine and strengthen the tax regime to bolster economic growth and fiscal stability in the long run.
Note: The text of Section 75A has been provided for informational purposes, and readers are encouraged to refer to the official documentation for the most accurate and up-to-date information.
