The Federal Board of Revenue (FBR) is preparing to introduce a new law aimed at abolishing the “late-filer” and “non-filer” categories from the Income Tax Ordinance 2001.
Sources have informed Business Recorder that the draft bill is currently in progress, following legal challenges to the “late-filer” designation introduced in the recent Finance Act 2024, which is under review by the Lahore High Court.
The proposed legislation will require individuals to justify their sources of income for financial transactions, including the purchase of properties and vehicles. To streamline this process, the FBR plans to establish various monetary limits and thresholds for income source declarations.
Under the new framework, if a taxpayer is a filer and can substantiate their sources of income, their family members—such as a non-filing spouse, parents, children under the age of 25, and unmarried, divorced, or widowed daughters—will be exempt from filing returns for financial transactions. However, the primary filer must disclose their income sources prior to these transactions.
The FBR intends to simplify public transactions by allowing individuals to purchase motorcycles and used cars up to 1300cc without needing to explain their income sources. For vehicles exceeding this limit, justification will be necessary. Additionally, property transactions valued up to Rs10 million may proceed without restrictions.
For example, a taxpayer with Rs100 in cash can make purchases up to Rs130 without drawing scrutiny from the tax department regarding the remaining Rs 30. Nonetheless, larger property transactions involving billions will require a declaration of the property’s market value and funding sources.
To facilitate compliance, the FBR will launch a mobile application that enables the public to declare their income sources, which will be accepted by the tax department. Taxpayers will not need to visit the relevant Commissioner for exemption certificates; instead, they can complete the “sources” section within the app.
Furthermore, the proposed law will introduce penalties for non-compliant taxpayers, linking access to facilities such as investments and bank accounts to the filing of tax returns. Monetary transactions will be prohibited without the establishment of fund sources through digital methods.
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The FBR is set to provide banks with information based on declared incomes, establishing specific thresholds; any financial transactions that surpass these limits will be reported back to the FBR. This new system is expected to be implemented in the coming months.
