New penalty regime introduced for non-filing tax returns

New penalty regime introduced for non-filing tax returns

The Federal Board of Revenue (FBR) has introduced new penalty regime introduced for non-filing tax returns in order to encourage documentation.

The FBR has implemented a new penal regime through the Tax Laws (Third Amendment) Ordinance, 2021. The amendment specifically targets late tax filers, introducing substantial penalties to encourage timely submission of income tax returns.

As per the latest changes, an amendment has been made to Section 182 of the Income Tax Ordinance, 2001. The FBR, in its explanation of the new ordinance, detailed the revised penalties that individuals failing to file their returns within the due date will now face.

According to the updated ordinance, a person who fails to file the return within the specified deadline will incur a penalty equal to the higher of Rs.1000/- or 0.1 percent of the tax payable for each day of default. This is a substantial increase from the previous penalty structure, aimed at promoting punctuality in tax compliance.

However, the new penalties come with certain variations based on income sources. For individuals with 75 percent or more of their income derived from salary, the minimum penalty is set at Rs.10,000/-. In other cases, the minimum penalty is higher, at Rs.50,000/-. It’s crucial to note that the maximum penalty a person can incur under these regulations will not exceed 200 percent of the tax payable by that individual.

To incentivize quicker compliance, the amended ordinance includes provisions for penalty reduction. The penalties mentioned above will be reduced by 75 percent if the return is filed within one month after the due date, 50 percent if filed within two months, and 25 percent if filed within three months.

Additionally, the FBR has taken a decisive step by omitting the general penalty for contravening any provisions of the ordinance. This shift in penalty structure demonstrates a targeted approach, emphasizing the importance of timely tax filings and removing the previously more lenient penalties for non-compliance.

The FBR’s move is a strategic effort to streamline the tax collection process and ensure that individuals and businesses fulfill their tax obligations promptly. Timely filing of tax returns is crucial not only for maintaining a transparent tax system but also for providing the government with accurate and up-to-date information to facilitate effective fiscal planning.

While these penalties may seem stringent, they are designed to create a stronger deterrent against delayed tax filings and encourage a culture of compliance within the taxpayer community. The FBR expects that these measures will contribute to a more efficient and disciplined tax administration, ultimately benefiting the national economy. Taxpayers are advised to be mindful of these changes and adhere to the revised deadlines to avoid incurring substantial penalties.