Bringing undocumented Pakistani sectors into the tax net - Part II

As Pakistan gears up to reform the Federal Board of Revenue — the national tax collection authority — one of the country's most prominent thinktanks, the Pakistan Business Council, has prepared a set of proposals for the FBR's restructuring.

The proposals are comprehensive and wide-ranging, which Nukta has presented in a three-part series. The second one is related to federal and provincial tax collection rules, and the real estate and agriculture sectors which have been infamous for avoiding the tax net.

The PBC has suggested that if the provinces fail to collect the targeted amount of tax, the federal authorities should be allowed to step in.

The council has also suggested taxing the real estate sector, which presents a significant opportunity, as an estimated PKR 500 billion in untaxed potential could yield a 10% realization of PKR 50 billion.

In the agricultural sector, measures need to be taken to address the parking and whitening of untaxed and corrupt funds. The law must be enforced to ensure that if taxes are not paid to provincial authorities, the federal government should be permitted to collect those taxes, according to the PBC. Conversely, if taxes have been paid at the provincial level, a federal tax return must be filed along with a wealth reconciliation.

Currently, while a wealth statement is required, the FBR has not enforced this regulation adequately and must do so.

Furthermore, publicizing the sales tax payments of well-known restaurants will help ensure transparency regarding their declared sales and corresponding income tax obligations.

To prevent non-filers from making benami purchases of vehicles in the names of filers, a maximum cap of 10 cars per individual filer should be established. Additionally, many individuals register for income tax solely to benefit from reduced withholding rates on property and vehicle transactions, only to deregister shortly afterward. To combat this, deregistration should be prohibited within five years of registration, except in genuine cases such as death or bankruptcy.