FBR proposes the concept of ‘eligible person’ to encourage documentation of economy

Pakistan's tax collecting authority has put forward a proposal to introduce the concept of an "eligible person" through a new section of the Income Tax Ordinance, aimed at documenting the economy and increasing the tax-to-GDP ratio by three percent.

This move aligns with conditions under the IMF Extended Fund Facility.

The proposed amendments to the Income Tax Ordinance 2001 define an eligible person as someone who has filed a return of income for the previous tax year and has sufficient resources in their wealth statement or financial statement.

Sufficient resources are defined as 130% of the cash and equivalent assets declared in the previous year's wealth statement or financial statement for companies or associations of persons.

Ineligible person will mean a person who is not an eligible person as per the bill.

Under the proposed section 11C of the ITO-2001, economic transactions for ineligible persons would be restricted, prohibiting them from booking, purchasing, or registering motor vehicles, except for rickshaws, motorcycle rickshaws, tractors, or pickup vehicles with engine capacities up to 800cc.

Additionally, persons authorized to sell securities or mutual funds would be barred from engaging in transactions with ineligible individuals or associations of persons.

According to the proposed bill, banking companies would be restricted from opening or maintaining current, savings, or investor portfolio securities accounts, except Asaan accounts, for persons notified by the Board. They would also be required to disallow cash withdrawals for such persons exceeding the limit prescribed by the Board.

The bill proposes several amendments to the Sales Tax Act, including a ban on operating bank accounts for unregistered individuals and a restriction on transferring immovable property.

Applications for registering or transferring immovable property exceeding a value set by the Board in a tax year would not be processed unless the Federal Board of Revenue notifies the threshold through an SRO/Notification.

The bill also defines immediate family members for individuals, including parents, spouse, son (below the age of 25), daughter (unmarried, widowed, or divorced), or a special child with long-term physical, mental, intellectual, or sensory impairment.