Islamabad, January 20, 2025 – The National Assembly is set to approve the “Tax Laws (Amendment) Bill, 2024,” which aims to overhaul the taxation regime by abolishing higher withholding tax rates for non-filers.
This shift follows a broader government strategy to impose strict restrictions on non-compliant individuals while ensuring a more equitable tax collection system.
The new tax laws will relieve non-filers from the burden of elevated withholding tax rates, but the Federal Board of Revenue (FBR) faces mounting pressure to achieve its revenue collection targets. Withholding taxes contribute approximately 70% of Pakistan’s overall direct tax revenue, and their gradual removal is expected to create significant fiscal challenges.
Under the proposed legislation, non-filers will be restricted from purchasing, booking, or registering vehicles over 800cc, acquiring property beyond prescribed limits, and making substantial stock purchases. Additionally, non-filers will be barred from opening new bank accounts and conducting high-value banking transactions. However, exceptions will allow non-filers to purchase motorcycles, rickshaws, and tractors, reflecting an attempt to balance restrictions with practicality for low-income individuals.
The phased implementation of these tax laws is designed to mitigate economic disruption. Officials have confirmed that changes to the withholding tax regime will be incorporated into the federal budget for 2025-26. This systematic approach underscores the government’s intent to ensure a smooth transition while addressing longstanding issues in tax compliance.
The legislation also grants sweeping powers to the FBR and its officers. The Chief Commissioner of Inland Revenue will have the authority to freeze bank accounts, seal business premises, and seize movable property of non-compliant individuals. Moreover, individuals failing to register for sales tax will face property transfer bans and frozen accounts. However, accounts will be unfrozen within two days after completing the registration process.
One of the bill’s objectives is to curtail economic transactions by ineligible persons. For example, securities brokers and financial institutions will be prohibited from facilitating transactions for non-filers. Additionally, financial institutions may be directed to freeze accounts of individuals identified as non-compliant under the tax laws.
Tax experts have raised concerns over the revenue shortfall resulting from these changes. While the government plans to offset the impact by introducing new measures in the upcoming budget, questions remain about the FBR’s capacity to enforce these policies effectively.
The tax laws reflect a paradigm shift in Pakistan’s fiscal policy, emphasizing compliance and enforcement while phasing out punitive measures like higher withholding tax rates. However, the road to implementation will require meticulous planning and robust execution to achieve the desired results.