The Federal Board of Revenue (FBR) has made it mandatory for companies and Associations of Persons (AOPs) to make disclosure of their beneficial ownership.
This transformative step aims to bring Pakistan’s regulatory framework in line with international best practices by ensuring the identification of natural persons who are ultimate beneficial owners.
Previously, the disclosure of beneficial ownership was not obligatory, allowing individuals to remain unidentified as beneficial owners through the use of intervening companies and trusts. Recognizing the importance of eliminating such loopholes and fostering a more transparent system, the FBR has introduced changes to the regulatory framework.
The introduction of a clear definition for the term ‘beneficial owner’ is a key aspect of these regulatory changes. This definition has been incorporated through the insertion of a new Clause (7A) in Section 2 of the Income Tax Ordinance, 2001. Additionally, a new Section 181E has been added to the Ordinance, outlining the requirement for companies and AOPs to electronically furnish particulars of their beneficial owners. Furthermore, these entities are now obligated to update these particulars whenever there is a change in the details of beneficial owners.
The FBR’s move aligns with global efforts to combat financial crimes, money laundering, and illicit financial activities. By compelling companies and AOPs to disclose beneficial ownership information, authorities can gain a more comprehensive understanding of the ultimate individuals controlling these entities. This, in turn, enhances regulatory oversight and reduces the risk of financial improprieties.
To ensure compliance with these new regulations, a penalty of Rs 1 million has been stipulated for each default by a company or AOP that contravenes the provisions of Section 181E of the Ordinance. This penalty is outlined in Entry No. 30 of the Table in sub-section (1) of Section 182.
The FBR’s commitment to fostering transparency and accountability within the taxation system reflects its broader efforts to create a more robust and equitable financial environment. These regulatory changes mark a significant step toward achieving these objectives and are expected to contribute to a more secure and transparent business landscape in Pakistan. Companies and AOPs are urged to adhere to these new disclosure requirements to avoid penalties and ensure their alignment with evolving international standards.
