FBR plans to abolish ‘late filer’ and ‘non-filer’ categories

The Federal Board of Revenue (FBR) of Pakistan is considering removing the categories of “late filer” and “non-filer” from the Income Tax Ordinance 2001.

According to Business Recorder, this move follows legal challenges against the “late filer” status introduced in the Finance Act 2024, which is currently under review by the Lahore High Court.

The FBR is drafting a bill that will require individuals to justify their sources of income for major financial transactions, such as purchasing properties and vehicles. To streamline this process, the FBR plans to set specific monetary thresholds for income declarations.

Under the proposed system, if a taxpayer is a filer and can provide evidence of their income sources, their immediate family members—such as a non-filing spouse, parents, children under 25, and unmarried, divorced, or widowed daughters—will not be required to file tax returns for financial transactions. However, the primary filer must disclose their income sources before such transactions occur.

The new framework also aims to simplify smaller transactions, allowing individuals to buy motorcycles and used cars up to 1300cc without needing to explain their income sources. For larger vehicles, justification will be required. Similarly, property transactions worth up to Rs10 million will be exempt from scrutiny regarding income sources.

For instance, a taxpayer with Rs100 in cash could make purchases up to Rs130 without triggering tax department inquiries about the additional Rs30. However, larger transactions involving properties valued in billions will require declarations of market value and sources of funding.

To encourage compliance, the FBR plans to launch a mobile app where individuals can declare their income sources, which will be accepted by the tax authorities. Taxpayers will no longer need to visit tax offices for exemption certificates; instead, they can complete the income declaration section within the app.

Moreover, banks will receive information from the FBR based on declared incomes, with specific thresholds set for financial transactions. Any transaction exceeding these limits will be reported back to the FBR. This new system is expected to roll out in the coming months.