Karachi, November 5, 2024 – The Federal Board of Revenue (FBR) has reiterated that all taxpayers in Pakistan must retain their tax records for a minimum of six years, as stipulated under Section 174 of the Income Tax Ordinance, 2001. This directive serves to ensure transparency and accountability, with specific record-keeping requirements set to facilitate audit and compliance procedures.
Section 174 mandates that every taxpayer, unless exempted by the Commissioner, must maintain all accounts, documents, and records pertinent to their tax obligations within Pakistan. This requirement underscores the necessity for individuals and entities to keep thorough documentation that substantiates their financial activities, including income, expenses, and transactions.
The FBR has clarified that any failure to provide adequate records may lead to significant consequences. According to Section 174(2), if a taxpayer is unable to produce documentation for a claimed deduction without reasonable cause, the Commissioner holds the authority to disallow or reduce the deduction. This provision is aimed at discouraging inaccurate or unsupported claims and promoting compliance with tax laws.
Furthermore, the legislation specifies a six-year retention period for all accounts and documents related to each tax year. In cases where legal proceedings are ongoing, including assessments, appeals, or petitions, taxpayers are required to retain their records until a conclusive resolution is reached. This clause is critical for individuals or businesses involved in any ongoing disputes or adjustments, as it mandates the preservation of records to substantiate their financial positions throughout the legal process.
Additionally, certain exemptions to the six-year limitation are provided, particularly regarding records that relate to undeclared income, assets, or expenses, as outlined in sub-section 2 of Section 111. These records, the FBR stipulates, are subject to indefinite retention due to their potential implications on tax liability and compliance.
The ordinance also defines “deduction” under Section 174(4) as any amount recorded within trading, manufacturing, receipts and expenses, or profit and loss accounts. This clarity is intended to assist taxpayers in identifying which entries require detailed record-keeping to substantiate deductions accurately.
In a further move to modernize tax compliance, Section 174(5) empowers the Commissioner to mandate the installation of an Electronic Tax Register. This digital solution is expected to streamline data retention, making it easier to access, store, and monitor financial transactions relevant to tax assessments.
The FBR’s directive highlights the critical role of meticulous record-keeping in achieving transparency and minimizing disputes, emphasizing that proper compliance safeguards taxpayers and strengthens the nation’s fiscal system.
