ICAP Recommends Penalty on Stop-Filers

ICAP Recommends Penalty on Stop-Filers

The Institute of Chartered Accountants of Pakistan (ICAP) has put forward a strong recommendation to impose penalties on individuals and entities known as stop-filers of income tax returns.

This recommendation comes as part of ICAP’s proposals for the 2024-25 budget, aimed at enhancing tax compliance and broadening the tax base in Pakistan.

ICAP has highlighted that certain Individuals, Associations of Persons (AOPs), and companies are filing NIL income tax returns merely to gain active taxpayer status and thus avoid additional withholding taxes. This practice, according to ICAP, undermines the tax system and enables tax evasion. To combat this, ICAP has proposed that the Federal Board of Revenue (FBR) undertake a thorough exercise to identify such returns, particularly focusing on those with a threshold deduction of Rs 20,000 in withholding taxes within a tax year. This scrutiny is intended to pinpoint potential tax evaders who are exploiting the system.

In addition, ICAP has raised concerns about stop-filers who temporarily enter the tax net to avail benefits and subsequently exit, evading their tax responsibilities. The current lack of an automated mechanism to ensure these taxpayers remain within the tax net exacerbates the issue. To address this, ICAP has suggested that benefits enjoyed by filers before they become stop-filers should be reversed, and a penalty should be imposed on those who exit the tax net.

ICAP further recommended making the procedure for exiting the tax net more stringent. By doing so, the organization believes that it will be possible to reduce the number of stop-filers and ensure that filers remain committed to their tax obligations.

These proposed changes are expected to play a significant role in curbing tax evasion and strengthening the tax regime in Pakistan. By enforcing stricter measures on stop-filers, the ICAP aims to enhance the integrity of the tax system and ensure a fairer distribution of tax burdens. This initiative reflects ICAP’s commitment to supporting the FBR in creating a more robust and compliant tax environment, ultimately contributing to the country’s economic stability and growth.