Pakistan minister criticizes state's inability to tax non-filers

Pakistan’s State Minister for Finance Ali Pervaiz Malik on Tuesday described the failure to bring non-filers into the formal tax net as an institutional failure of the state.

He made the statement during a briefing on the Tax Laws Amendment Bill 2024 before the National Assembly Standing Committee on Finance and Revenue chaired by Syed Naveed Qamar.

Malik criticized past governments for using non-filers as a revenue source without addressing the underlying issue. "Governments remained silent on non-filers for 75 years but are now addressing the issue," he said.

He highlighted that individuals with undocumented wealth seek avenues to park their illegal money. Malik informed the parliamentary panel that if the government could stop the use of around PKR 9 trillion in cash circulation, non-filers would be forced into the documented regime.

"Only five million filers cannot run the country; we have to go after under-taxed and non-taxed sectors," he maintained.

Under the new tax laws, non-filers will face restrictions on large transactions, such as buying property, vehicles, or investing in businesses or equity. Malik emphasized that the Tax Laws Amendment Bill 2024 would play a key role in documenting the economy.

Malik acknowledged that restrictions on non-filers' economic transactions would cause pain and disruption but stressed the need to bring black money into the documented regime.

He noted that nearly half of Pakistan’s economy runs on black money and announced plans to hire 1,600 auditors to track non-filers and enforce the new tax laws.

Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial stated that people with undeclared income were facilitated while documented sectors were overburdened with taxes.

He pointed out that revenue collection from 2008 to 2024 had not increased despite higher tax rates on the salaried class and others. Langrial criticized past governments for making illegal money legal by offering higher withholding tax rates to non-filers.

The Tax Laws Amendment Bill 2024 proposes changes targeting high-income individuals and businesses, granting FBR officers additional powers to block transactions involving black money and tax evasion. The bill also includes measures to recruit 1,600 auditors to strengthen revenue enforcement.

Several committee members expressed concerns about the bill’s implementation, particularly the potential disruption to the economy. Lawmakers recommended caution, noting that rushing such significant changes could lead to problems.

Discussions also focused on the challenges posed by Pakistan’s largely informal economy, with committee members pointing out that nearly half of the economy operates through black money.

Some lawmakers argued that the bill might inadvertently harm common people, especially in their ability to purchase vehicles and property.

The committee formed a five-member sub-committee to engage with stakeholders, including the FBR and the Association of Builders and Developers (ABAD), to review the Tax Laws Amendment Bill 2024.

This sub-committee is expected to submit its report within 10 days, providing more insights on how the bill may impact the property market.