By In a sweeping move aimed at broadening the tax base and formalizing Pakistan’s economy, the government has proposed a significant overhaul of the tax classification system under Section 115 of the Income Tax Ordinance. The most consequential change is the elimination of the longstanding distinction between tax filers and non-filers. Under the new framework, over 100 million Pakistanis may become ineligible to purchase vehicles, invest in stocks, or acquire property unless they are registered taxpayers.
Key Highlights of the Proposed Tax Changes
As part of its broader fiscal reforms, the government plans to implement the following measures:
- Only active tax filers who submit both income tax returns and wealth statements will be allowed to:
- Purchase motor vehicles and immovable property
- Invest in stocks, mutual funds, and government securities
- Open certain types of bank accounts
- Access to bank loans, credit facilities, and financing will be restricted to individuals who can verify their income and repayment capacity through documented financial sources.
This policy shift aims to plug loopholes in the taxation system that have allowed individuals with undocumented wealth to remain outside the tax net while enjoying access to high-value assets and financial products.
“Option B”: A Route to Regularization
To facilitate compliance and encourage participation in the formal economy, the government will introduce an “Option B” mechanism. This initiative allows individuals with previously undeclared income or assets to:
- File a one-time return
- Declare their assets
- Pay the applicable taxes and penalties
- Gain eligibility to participate in the formal financial and investment systems
This option is designed to provide a bridge for informal sector participants to enter the formal economy without facing immediate punitive consequences.
Economic Impact and Enforcement
According to tax experts, this reform aligns with the International Monetary Fund (IMF) recommendations and global best practices. Pakistan has long faced a narrow tax base, with only around 4 million active taxpayers in a population exceeding 240 million. The move could significantly boost federal tax revenues, enhance documentation, and curb money laundering and real estate speculation fueled by black money.
The Federal Board of Revenue (FBR) is expected to use NADRA data integration, banking transaction monitoring, and asset registration systems to enforce compliance. Strict penalties and audit mechanisms may follow for non-compliance.
Disclaimer:
The information provided in this article is based on proposed legislation and is subject to change pending official approval and publication in the Gazette of Pakistan. For specific legal or financial advice, individuals are advised to consult with a certified tax professional or legal advisor.
