The government is likely to withdraw the powers of the National Database and Registration Authority (NADRA) for determining the income and tax liability of unregistered persons and non-filers for the purpose of broadening the tax base.
Senior officials in the Ministry of Finance informed ProPakistani that the budget proposal is under discussion for incorporation in the Finance Bill 2023. The experience of expanding the tax net through the NADRA has not achieved the desired results.
There is strong thinking among the budget makers to take away all kinds of powers of the Authority available under section 175B ( powers of NADRA to assess and recover income tax from non-filers) of the Income Tax Ordinance.
Under this section, the authority has ample powers to take all kinds of actions against the non-filers of income tax returns.
The Federal Board of Revenue (FBR) will have to propose the abolition of section 175B ( powers of NADRA to assess and recover income tax from non-filers) of the Income Tax Ordinance through Finance Bill 2023.
Subsequent to the withdrawal of section 175B from the Income Tax Ordinance, the FBR can introduce a new provision (section 175C) for the formation of a Realtime National Integrated database which may be controlled by SBP or FBR where all data including banking transactions may be analyzed by AI on the basis of tax declaration and non-compliant taxpayers may be nudged to revise their returns.
In case of failure to revise income or to file correct incomes, the information may be made available to FBR for necessary action, the proposal added.
Under section 175B, the National Database and Registration Authority shall, on its own motion or upon application by the Board, share its records and any information available or held by it, with the Board, for broadening the tax base or carrying out the purposes of the Ordinance.
The National Database and Registration Authority may
- Submit proposals and information to the Board with a view to broadening the tax base;
- Identify in relation to any person, whether a taxpayer or not – (a) income, receipts, assets, properties, liabilities, expenditures, or transactions that have escaped assessment or are under-assessed or have been assessed at a low rate, or have been subjected to excessive relief or refund or have been misdeclared or misclassified under a particular head of income or otherwise; (b) the value of anything mentioned in sub-clause (a) of clause (ii), if such value is at variance with the value notified by the Board or the district authorities, as the case may be, or if no such value has been notified the true or market value; and
- Enter into a memorandum of understanding with the Board for secure exchange and utilization of a person’s information.
The Board may use and utilize any information communicated to it by the National Database and Registration Authority and forward such information to an income tax authority having jurisdiction in relation to the subject matter regarding the information, who may utilize the information for the purposes of the Ordinance.
NADRA may compute indicative income and tax liability of anyone by the use of artificial intelligence, mathematical or statistical modeling or any other modern device or calculation method.
The indicative income and tax liability computed by NADRA shall be notified by the Board to the person in respect of whom such indicative income and tax liability has been determined, who shall have the option to pay the determined amount on such terms, conditions, installments, discounts, reprieves pertaining to penalty and default surcharge, and time limits that may be prescribed by the Board.
The withdrawal of the said powers will not stop the FBR from utilizing data available with the authority, sources added.