8 Penalties for Non-Filers According to the Latest 2024 FBR Laws

Non-filers will face harsher penalties in Pakistan in 2024 as the FBR (Federal Board of Revenue) implements a more aggressive strategy. This is part of a government-wide effort to increase tax compliance, and close the gap between the taxpayers and taxable population. Individuals who do not file their income tax returns are subject to severe financial, transactional, and legal consequences. These penalties are detailed in the following sections based on FBR regulations.

1. Higher Withholding Tax (WHT) Rates

The application of higher rates of withholding tax is one of the immediate penalties that non-filers face. Non-filers face increased tax rates for a variety of financial transactions such as buying property, cars and banking. The Income Tax Ordinance stipulates that non-filers are subject to a WHT rate that can be double the rate of filers.

For example, on withdrawal of Rs. 50,000, Non-filers are required to pay 0.6% WHT whereas filers only pay 0.3%. Similarly, non-filers who purchase motor vehicles or real estate are subject to higher tax return. The cost of major purchases can be significantly increased for those who are not in the tax net.

The WHT is a deterrent that encourages individuals to file tax returns in Pakistan and establish their status as active tax payers/ contributors to the Tax system. We want to tell you more about the Pakistan taxation system, its role in the survival of the country and much more. Scroll down to find out more.

2. Restriction on Purchase of Property and Vehicles

Recently, the government has placed restrictions on non-filers. They are prohibited from buying high-value assets such as real estate or vehicles. This targeted measure is designed to reduce tax evasion, and encourage wealthy individuals who do not file taxes to join the formal tax system.

According to current regulations, nonfilers are not allowed to purchase immovable property exceeding Rs. 5 million. This rule is applicable to both rural and urban properties. Non-filers cannot buy vehicles with engine capacities exceeding 1,000 cc. These restrictions affect an individual’s capacity to purchase assets or luxury goods without filing taxes. This can lead to additional financial burdens.

These measures have increased the pressure placed on buyers, particularly those who are not registered for tax, to become regularized before they make significant purchases.

3. SIM Card Blocking

Blocking mobile SIM cards is one of the most unique and impactful penalties that are being enforced. This play a larger strategy to disrupt non-compliant people’s daily lives and force them to comply with tax laws. In Pakistan, Telecom operators are required to block SIM cards for individuals who do not submit their tax returns.

This measure has been shown to increase compliance as mobile communication is vital for daily activities. The blocking of SIM cards is usually a measure used as a last resort when people fail to respond to the FBR’s notices regarding their non-filer status.

4. Increased Taxes on Bank Transactions

Non-filers pay higher taxes for banking transactions such as cash withdrawals, debt profits, and even maintaining bank accounts. Non-filers face a penalty in the form of increased withholding taxes on large bank cash withdrawals. As told earlier Non-filers pay 0.6% on withdrawals of cash exceeding Rs.50,000 and filer pays 0.3%.

Non-filers also face higher rates of tax on profits earned from bank deposit. Non-filers are required to pay a greater percentage of their incomes to the government, which reduces the amount they can use for personal expenses or reinvest.

The government has also taken steps to enhance the monitoring of financial activity by non-filers. The FBR plans to work closely in 2024 with banks and financial institutions to flag big transactions made by non-filers. The FBR will tighten the net around tax evaders as they will be more closely scrutinized.

5. Confiscation of property and legal action

The government has taken legal action to punish non-filers who continue to evade tax, especially those with significant wealth. FBR is authorized to take legal action against non-filers who fail to declare their tax status. This can result in the confiscation or undeclared property and assets. Non-filers may also be subject to heavy fines ranging between Rs.5000 – 50,000, depends on the type of violation and the amount tax evaded.

The FBR is also authorized to audit and assess tax liabilities for individuals who are suspected of not declaring their incomes or assets. Non-filers who are found to have made mistakes may be forced to pay additional penalties and fines as well as the tax evaded. Non-compliance can lead to criminal prosecution or even imprisonment in some cases.

The government is actively working to implement new valuation rules, which will close the loophole where property values are understated in order to avoid paying taxes. The FBR can now assess the real market value of property and make sure that the right amount of tax on real estate transactions is paid.

6. Visa and Travel Restrictions

Travel restrictions for non-filers to other countries are becoming more restrictive. Non-filers who apply for visas and purchase international airline tickets are flagged as part of the FBR’s aggressive effort to get more people on the tax system. The government has placed restrictions on the purchase of tickets for international travel, adding an additional layer of inconvenience to non-compliant individuals.

Non-filers will also have a harder time obtaining visas to certain countries. This is especially true for those who require proof of tax compliance in order to apply for a visa. Many individuals have found that these travel-related penalties are a powerful motivator to avoid the inconveniences of being a nonfiler.

7. Unqualified/ Ineligibility for Government Contracts and Tenders

Non-filers are unable to participate in government tenders and contracts. All individuals and companies bidding for public projects in Pakistan must be registered as tax filers. This restriction limits the options available to those who do not file taxes, especially businesses that depend on government contracts as their main source of income.

Non-filers will be automatically disqualified for submitting public tenders. This can have significant financial impacts on businesses.

8. Restriction on Credit and Loans

Banks and other financial institutions also have difficulties in approving loans or credit facilities for non-filers. Most banks require that individuals provide proof of tax-filing before they approve loans, credit cards or mortgages. Non-filers could be denied these financial products, or they may face higher interest rates and stricter repayment terms.

In order to avoid such limitations, the banking sector and the FBR are increasingly working together to ensure that those seeking credit comply with tax laws. It is therefore essential for people to file their taxes and remain on the Active Taxpayers List.

Conclusion:

FBR’s new policies and penalties against non-filers is a part of strategy to improve revenue collection in Pakistan and reduce the deficit. The penalties aim to encourage individuals to pay their fair share of tax and file returns in order to maintain their regular status. Non-filers will face financial and other challenges in 2024, whether it is through increased taxes, restrictions on assets purchases or legal action.

Complying with tax laws allows individuals to avoid penalties and gain access to many benefits. These include lower withholding taxes on loans, participation in government contracts, and easier access to credit. The government is continuing to enforce tax laws, making it more important than ever for Pakistanis to file taxes and remain active taxpayers.