Introduction
Each year the Government of Pakistan introduces the finance bill which deals with taxation, which determines the tax rates of every income group including salaried individuals and businesses. While filer is a common word, there is no such term as a non-filer in any country except Pakistan which encompasses the non-taxpayers and unregistered citizens.
Filer and Non-Filer
Filers are people or organizations that file their income taxes regularly and are registered with the Federal Board of Revenue (FBR) of Pakistan. Filers notify the tax authorities of their assets, income, and liabilities regularly. These are the people who appear on the FBR Active Taxpayers List (ATL).
On the other hand, non-filers are those individuals or entities that are registered with FBR but did not submit their income tax returns or did not register with FBR. Non-filers might be people who purposefully or unintentionally avoid paying taxes, or they can be those who do not make the required income threshold for filing taxes.
How to Become a Filer in Pakistan?
Individuals who make more than the government’s minimum taxable limit, including freelancers, business owners, and salaried employees, are required to file annual sales tax reports. However, every citizen should register with FBR to improve the tax system of Pakistan.
There are two ways to become a filer in Pakistan. The first method is physically visiting the nearest Regional Tax Office and filling out the National Tax Number (NTN) form. The required documents submission such as Computerized National Identity Card (CNIC), proof of residence, bank statement, and employer certificate (for employees only).
To further facilitate the citizens and improve the tax system, FBR has launched an online registration where users can now log into the FBR IRS portal and fill out the online form conveniently. The FBR will issue the NTN number which is now the CNIC number of the citizens of Pakistan.
Benefits of Being a Filer
Like every other country, Pakistan, too, is dependent on tax collection for smooth functioning. The Pakistan Economic Survey has projected a tax-to-GDP ratio of 8.9 percent for FY 2024, reflecting a modest increase from the 8.5 percent recorded in FY 2023.
The first and most important benefit of being a filer is complying with legal requirements and playing an active role in nation-building because of their timely submission of income tax returns which should be spent on many national developmental projects.
Filers withhold lower tax rates on various transactions, including banking, property, and vehicles. Filers pay less tax on property purchasing and house renting. They can also be free to purchase expensive vehicles, while non-filers need to be filers to do that. Furthermore, the filers have lower taxes on bank profits and zero tax on transactions.
Those with a “filer status” are eligible for numerous tax exemptions and deductions. Filers have lower taxes on price bonds and other general services. Additionally, if they pay extra taxes, they can also claim a refund. Moreover, the regular submission of tax returns significantly improves the credit rating and eligibility for loans.
Consequences For Non-Filers
The Government of Pakistan issued various statements regarding non-filers who are liable to pay income tax but have yet to pay, advising them to become filers and active taxpayers. Non-filers face consequences for their actions; there are limits on buying properties as they can’t buy property that exceeds a certain limit, and the limit was 50 lacs in 2021. They can’t purchase certain vehicles and will pay huge tax on the registration of a vehicle. They will pay more than that of filers on bank profits and transactions.
The FBR also issued the order to block the mobile sims of non-filers who are liable to pay income tax. The FBR made a statement that “The FBR is pleased to issue this Income Tax General Order (ITGO) to disable the mobile phone SIMs for the following individuals who do not appear on the active taxpayer list but are required to file an income tax return for tax year 2023 under the provisions of the Income Tax Ordinance, 2001. This is done in exercise of the powers granted under section 114B of the Income Tax Ordinance, 2001.” The mobile SIMs of these individuals will remain disabled until restored by FBR or the commissioner of Inland Revenue.
Recently, the government has been planning to impose a travel ban on non-filers which will put further pressure on the non-filers. A tax expert stated that to encourage the filing of returns, the Finance Bill proposes to impose a foreign travel ban for Pakistani citizens. However, these restrictions shall not apply to individuals holding NICOP, minors, students, and other classes of persons.
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Mr Muhammad Mudassir is a student of Bachelors of Science in Defence and Strategic Studies at Quaid-e-Azam University Islamabad.