The government has decided to introduce a punitive legal regime to convert non-filers into active taxpayers after the upcoming budget.
This major policy initiative is to double the existing number of income tax filers to four million in the next two years while bolstering the overall goal of levying an additional Rs. 688 billion taxes that will take effect from July 2019.
Currently, the higher income tax rates are charged to those who do not file their annual statements of income and assets. However, now the government is planning to start legal proceedings against individuals who carry out cash or bank transactions but are absent from the Active Taxpayer List (ATL).
Presently, less than two million people are on the ATL, which contains the names of individuals who have submitted their annual wealth and income statements to the Federal Board of Revenue (FBR).
The FBR has suggested including a 10th Schedule in the Income Tax Ordinance, 2001, that will comprise of two major legal components. There will be withholding tax-related sections that will attract 100 percent higher rates than those paid by income tax return filers.
The second component requires the withholding tax collecting agents to immediately convey the traceable information of the non-filers to the FBR, which will send provisional tax demand to these people on the assumption of concealed income.
Moreover, the withholding tax agents will also be required to obtain the Computerized Identity Card (CNIC) number and other related information of the said individuals.
The exceptions to the 10th schedule will be cases where fixed income is involved or the business transactions are known, and hence, are not outside the formal economy.
The government is also considering abolishing 20 withholding tax sections that are not bringing significant revenues.