Karachi, July 31, 2024 – The Federal Board of Revenue (FBR) has empowered commissioners of Inland Revenue (IR) to inquire about foreign assets held by residents, as part of its efforts to enhance tax compliance and transparency.
This FBR is detailed in Circular No. 1 of 2024-25, explaining key income tax amendments introduced through the Finance Act, 2024.
According to the FBR, the new provisions under sub-section (2) of Section 116 of the Income Tax Ordinance mandate every resident individual filing a return of income to submit a wealth statement and a wealth reconciliation statement for the relevant tax year along with their return. This requirement is aimed at ensuring comprehensive disclosure of both domestic and foreign assets and liabilities.
Sub-section (1) of Section 116, through clauses (a) and (b), empowers the commissioner to issue a written notice to any individual, requiring them to furnish a wealth statement in the prescribed form, according to the FBR. This statement must include detailed particulars of the individual’s total assets and liabilities, as well as those of their spouse, minor children, and other dependents. The latest amendments now explicitly include foreign assets and liabilities within this reporting requirement.
Additionally, an important clarification has been added: assets of the spouse are to be included in the wealth statement only if the spouse is financially dependent on the individual. This ensures that only relevant and accurate information is captured, preventing unnecessary reporting of independent spouses’ assets.
The empowerment of commissioners to inquire about foreign assets reflects the FBR’s commitment to curbing tax evasion and ensuring that residents fully disclose their global financial holdings. This move is expected to bring more transparency to the financial affairs of Pakistani residents and improve the integrity of the tax system.
By broadening the scope of the wealth statement to include foreign assets and liabilities, the FBR aims to capture a complete picture of a taxpayer’s financial status, making it harder for individuals to conceal assets abroad. This is particularly significant in light of global efforts to enhance financial transparency and combat tax evasion through international cooperation and information exchange agreements.
The new regulations are part of a broader strategy to strengthen the tax framework in Pakistan, ensuring that all taxable assets are accurately reported and taxed accordingly. This will not only increase tax revenues but also promote fairness and equity in the tax system by ensuring that individuals with significant foreign holdings contribute their fair share.