Karachi, October 8, 2024 – The Federal Board of Revenue (FBR) has mandated that Pakistani residents with substantial foreign income and assets must declare these holdings as part of their annual tax returns. This new requirement, governed by Section 116A of the Income Tax Ordinance, 2001, will apply to individuals whose foreign income and assets exceed certain thresholds.
According to the FBR, this directive will help strengthen the country’s tax compliance framework by ensuring that foreign income and assets are accurately accounted for. Under the amended regulations, every resident taxpayer who earns foreign income of at least 10,000 US dollars or holds foreign assets valued at 100,000 US dollars or more must submit a detailed statement of these holdings. The declaration must accompany the taxpayer’s annual return and adhere to the prescribed form and verification process.
Key Provisions Under Section 116A
The FBR has outlined several key requirements for taxpayers under Section 116A of the Income Tax Ordinance. These include the following obligations:
1. Disclosure of Total Foreign Assets and Liabilities:
Taxpayers must provide a comprehensive declaration of their total foreign assets and liabilities as of the last day of the tax year. This will include details of properties, bank accounts, investments, and any other foreign financial holdings, ensuring full transparency of offshore wealth.
2. Details of Asset Transfers:
Any foreign assets transferred by the taxpayer to another individual during the tax year must be reported, along with the consideration for the transfer. This provision aims to prevent the concealment of foreign assets through transfers or other indirect means.
3. Foreign Income and Expenditure:
Taxpayers are required to disclose their foreign income in detail, including the sources of this income, and any expenditures incurred during the year. Expenditures necessary to generate foreign income must also be itemized, creating a comprehensive picture of the taxpayer’s international financial activities.
Failure to comply with these requirements will not go unnoticed. The Commissioner of Inland Revenue has the authority to issue notices to any individual who, in the Commissioner’s judgment, was obligated to file a foreign income and assets statement but failed to do so. The taxpayer must then submit the required statement by the date specified in the notice.
The FBR’s move is part of broader efforts to tighten oversight on international financial activities and increase accountability among Pakistani taxpayers with foreign interests. By compelling individuals with substantial foreign assets and income to declare their holdings, the government aims to combat tax evasion, improve revenue collection, and ensure that all taxpayers contribute fairly to the national economy.
This new policy is expected to have far-reaching implications, particularly for high-net-worth individuals with offshore interests, and underscores the FBR’s commitment to enhancing financial scrutiny and fostering a culture of compliance.