The Tax Laws (Amendment) Bill, 2024 introduces a series of proposed restrictions targeting non-compliant individuals and entities under Section 114C(1) of the Income Tax Ordinance, 2001. These amendments are aimed at curbing tax evasion and improving tax compliance by restricting certain transactions for individuals and businesses that fail to meet tax obligations. The bill, as outlined by Tola Associates and Tola & Tola, specifies several key restrictions that will come into effect once notifications are issued by the Federal Board of Revenue (FBR).
Restrictions on Vehicle Purchases and Registrations
The bill imposes a significant restriction on the purchase and registration of motor vehicles. Under the proposed amendments, individuals who are deemed non-compliant will not be allowed to apply for booking, purchase, or registration of a motor vehicle. Specifically, vehicle manufacturers or registering authorities under the excise and tax departments will be prohibited from processing such applications from non-compliant persons. This restriction aims to limit the ability of individuals with unresolved tax issues from acquiring new vehicles, thereby encouraging tax compliance.
Restrictions on Property Transactions
Another proposed restriction concerns transactions related to immovable property. The bill specifies that applications or requests for the registration, recording, or attestation of transfers of immovable property will not be accepted from non-compliant individuals if the transaction exceeds a certain value, as defined by the FBR. This value threshold will be notified periodically through an SRO or Notification. This measure is designed to target large property transactions, which often involve significant amounts of unreported income, thereby discouraging non-compliance in the real estate sector.
Securities Transactions
The proposed amendments also affect individuals and entities involved in securities transactions. Anyone authorized to sell securities, including debt securities or mutual fund units, will face restrictions on selling or clearing transactions for ineligible persons, which include individuals or Associations of Persons (AOPs) who are not compliant with their tax obligations. This includes restrictions on opening and maintaining accounts for such individuals or entities, which will significantly hinder their ability to engage in the securities market unless they meet the required compliance standards set by the FBR.
Banking Restrictions
Banking companies will also be restricted under the proposed amendments. Specifically, they will not be allowed to open or maintain current, savings, or investment accounts for persons who are listed by the FBR as non-compliant. The implementation of this restriction will occur once the FBR notifies the names of the individuals or entities that fall under this category. This will prevent non-compliant individuals from accessing basic banking services, adding another layer of pressure to ensure compliance with tax regulations.
Cash Withdrawal Restrictions
Additionally, banking companies will face restrictions on cash withdrawals. They will be prohibited from allowing withdrawals in excess of a limit prescribed by the FBR. This general restriction on cash withdrawals is aimed at discouraging large cash transactions, which are often used to conceal income or evade taxes. Like other restrictions, this will come into effect once the FBR notifies the threshold for maximum allowable withdrawals.
Exemptions from Restrictions
While the proposed restrictions are broad, the bill does carve out certain exceptions. Ineligible persons will still be allowed to purchase specific types of vehicles, such as rickshaws, motorcycle rickshaws, tractors, and pickup vehicles up to 800CC. Furthermore, the purchase of motor vehicles other than the specified types, or vehicles such as trucks and buses, will also be permitted, but only if the limitations and restrictions set by the FBR are met.
Additionally, certain transactions conducted by public companies or non-resident persons will not be subject to these restrictions, with the exception of cash withdrawals from their bank accounts. This allows some flexibility for businesses and foreign investors, who may not be directly involved in tax evasion practices but still need to comply with the overarching tax regulations.
Compliance through Documentation
For non-compliant individuals, the bill proposes a pathway to compliance. If an ineligible person files their income tax return for the latest completed tax year and submits a source of investment and expenditure statement on the FBR’s web portal, they may be exempted from certain restrictions. This statement must specify the sources of funds used for making specific transactions. It is important to note that the filing of such a statement will not be construed as an acknowledgment of the nature and source of income for the purposes of Section 111 of the Income Tax Ordinance, 2001.
This provision aims to provide a mechanism for individuals to correct their tax status by disclosing their financial activities transparently, thereby enabling them to access restricted transactions once they demonstrate their compliance with tax laws.
Conclusion
The Tax Laws (Amendment) Bill, 2024 introduces a significant set of restrictions targeting non-compliant individuals and entities. These measures, once implemented, will affect a wide range of transactions, from vehicle purchases to banking activities and property deals. While these restrictions are aimed at enhancing tax compliance, they also come with carve-outs and exceptions that provide opportunities for individuals and businesses to rectify their status and avoid the penalties associated with non-compliance. The effectiveness of these measures will ultimately depend on the timely issuance of notifications by the FBR and the level of enforcement across various sectors.