On Thursday, the Standing Committee on Finance and Revenue approved the Tax Laws Amendment Bill 2024. This new bill allows the Federal Board of Revenue (FBR) to audit sales in advance and restrict lavish purchases if they exceed a person’s declared income. Let’s break down the important parts of this new tax law.
Focus on the Top 5% of Earners
According to Chairman FBR Rashid Langrial, the new changes will mainly affect the top 5% of earners in Pakistan. 95% of the population will not be impacted. This new measure is aimed at those who earn a lot of money but do not pay their fair share of taxes.
Key Features of the Amendment
The amendments focus on two main areas: tax filing and lifestyle audits.
1. Tax Filing and Lifestyle Scrutiny
One of the biggest changes is that people will now have to justify their income against their assets and lifestyle. If a person’s purchases exceed 130% of their declared income, they will need to explain where the extra money came from. For example, if someone claims to earn 100,000 rupees a month, and they buy something worth 130,000 rupees, they must explain the source of the additional 30,000 rupees in their tax returns.
2. Pre-Audit of High-Value Sales
The bill also includes measures for pre-auditing high-value sales. This means that the FBR will check large transactions before they are completed. For example, if someone buys gold or foreign currency, the FBR will monitor those purchases to make sure they match the person’s declared income.
3. Declaring Income for Major Purchases
The bill requires that major purchases such as vehicles, properties, or investments must be explained in tax returns. If a person buys a luxury item or a property, they will need to show how they can afford it based on their income.
4. Tax Stamps on Cigarettes and Beverages
Another interesting part of the bill is the requirement for cigarettes and beverages to have tax stamps, stickers, or barcodes. This will make it easier for the government to track these products and ensure that the correct taxes are being paid.
Why These Changes Are Important
Finance Minister Muhammad Aurangzeb explained that the new measures are essential for boosting Pakistan’s tax-to-GDP ratio, which is currently low. The government aims to raise the tax-to-GDP ratio to 13.5% in the next three years. In addition, provinces will also be required to contribute an additional 3% to help meet this target.
New Bank Account Rules for Pensioners and Non-Filers
The committee also recommended a new rule that will allow pensioners and non-filers to open Asaan bank accounts. This will make banking easier for these groups and help more people access financial services.
Summary Table of Key Changes in the Tax Law
| Change | Details |
|---|---|
| Focus on High Earners | 95% of population unaffected; focus on top 5% income earners. |
| Pre-Audit for High-Value Sales | FBR to monitor large transactions such as gold and foreign currency. |
| Lifestyle Scrutiny | Purchases exceeding 130% of declared income must be explained in tax returns. |
| Declaration for Major Purchases | Major purchases (cars, property, etc.) must match income and be declared in tax returns. |
| Tax Stamps on Cigarettes | Cigarettes and beverages will require tax stamps, stickers, or barcodes. |
| Tax-to-GDP Ratio Target | Government aims to increase tax-to-GDP ratio to 13.5% within three years. |
| Asaan Bank Accounts | Pensioners and non-filers can open Asaan bank accounts. |
Summary
The Tax Laws Amendment Bill 2024 introduces significant changes aimed at reducing tax evasion and increasing transparency in Pakistan. By targeting high earners and large transactions, the government hopes to raise more revenue and ensure that everyone pays their fair share. These steps are important for improving Pakistan’s economy and achieving higher tax collection, which is needed to support public services and development.
