Pakistan is reviewing a proposal to impose significantly higher tax rates on non-filer religious travelers as part of its efforts to bring undocumented money into the formal economy.
The suggestion was submitted by the Reforms & Revenue Mobilization Commission (RRMC) for the upcoming budget of 2023-2024.
According to sources, an estimated $2-3 billion is spent annually on foreign travel, particularly for religious tours, by individuals who do not fulfill their tax obligations. These travelers often opt for economy class flights. While the Federal Excise Duty (FED) is currently applicable to air tickets, including higher rates for business class travel, there is a lack of visibility when it comes to those who evade direct taxes.
Under the commission’s proposal, income tax would be levied on all air tickets issued for foreign travel, including economy class, at a rate of 5 percent for taxpayers on the Active Taxpayers List (ATL) and 20 percent for non-ATL individuals.
Additionally, hoteling and other travel expenses would be subject to withholding at a rate of 5 percent for ATL travelers and 20 percent for non-ATL travelers. The withholding process would be facilitated through travel agents, tour operators, debit cards, and credit cards.
The proposal suggests allowing an exemption for the Haj pilgrimage once every five years. To ensure compliance, tax receipts would be checked at airports by the Federal Board of Revenue (FBR) using an automated seamless system.
The implementation of such measures aims to encourage religious travelers to become tax-compliant and contribute to the formal economy. By imposing higher tax rates on non-filers, Pakistan hopes to deter tax evasion and increase revenue generation from the travel sector.
These proposals are still under review and have not been officially implemented. However, if approved, they would mark a significant step towards bringing undocumented money into the formal economy and strengthening Pakistan’s tax system.