FBR’s Penalty on Late Filers is Illegal

The Federal Board of Revenue (FBR) cannot enforce a penalty on a new “Late Filers” category retrospectively, introduced through the Finance Act 2024 which is unconstitutional, according to tax experts.

Tax experts said some taxpayers also approached the Lahore High Court (LHC) against the instant move of FBR.

It is contended before the court that the status of the petitioner is Active in the Active Taxpayers List, therefore, it is required to despot the advance tax under section 236K of the Income Tax Ordinance, 2001 at the rate of 3 percent as per rates prescribed under Division-XVIII of Part-IV of the First Schedule on the purpose of immovable property, but the department is compelling petitioner to pay said tax at the enhanced rate of 6 percent, without any legal justification.

Further, it was submitted before the LHC that the action, being contrary to the applicable law, is unsustainable. The LHC has issued notices to the tax department to submit a reply, LHC order added.

ProPakistani consulted several tax experts and advisers, including Farhan Tariq from FB Consultants, who explained that the new “Late Filers” category introduced in the income tax law will become applicable starting July 1, 2024. Therefore, the new income tax law cannot be enforced with retrospective effect. The implementation of the law retrospectively will be illegal and challenged in courts, he added.

Finance Act 2024 has introduced the concept of ‘late filers’, which is the third category. Any person who files a tax return after the end of due dates and then becomes an active taxpayer would be treated as a late filer and separate rates on the purchase or disposal of immovable property would apply to him, which would not be that of the active taxpayer.

Earlier, income taxpayers were placed in two categories, Filers and non-filers. Now, a new category of “Late Filer’ has been created which will attract a higher rate of tax for late filing of income tax returns. This measure will enforce the timely filing of tax returns.