If you try to claim tax credits you don’t actually deserve, then you’re going to have to pay back that exact amount now, and it’s just the first step toward an even stricter tax system in Pakistan.
Tax compliance regime in Pakistan becomes stricter from now onwards. Standing Committee on Finance has passed a resolution that levies a penalty for excess tax credit which will apply to those taxpayers who claim tax credit in excess of their entitlement.
The process is simple and harsh as well. The representatives from FBR said in the meeting of the committee that any individual who is found guilty of overstating the tax credit would be fined an amount that would equal the extra tax credit. This means the punishment would be equal to the crime; try to claim an extra tax credit of Rs. 100,000, then you would be fined that amount.
The fine on the excessive tax credit will help to end the abuse of the system which has been used by people to make false claims with only minimal consequences other than correcting the mistake. From now on, there is going to be a change in the risk-reward calculation for overstating credits.
The Cost of Not Filing on Time Has Increased
In addition to the extra tax credit penalty, the Standing Committee has dealt with another issue regarding compliance people who fail to file on time and have to return to the Active Taxpayer List.
It has been suggested that individuals who fail to file their returns within the required time will be excluded from the Active Taxpayer List. The cost of returning to the Active Taxpayer List after being excluded has increased considerably.
It is companies that are faced with the highest rate of increase. The ATL surcharge for companies whose filings have not been filed in time to gain entry to the ATL will be raised to Rs100,000 from Rs25,000. This fivefold increase shows how serious the government is about discouraging tardiness among companies.
The same increase applies to associations of persons. The amount of surcharge for associations of persons who are seeking to become part of the ATL has been increased from Rs10,000 to Rs50,000.
Importantly, no tax refund will be made when the taxpayer is excluded from the ATL system. This point puts more strain on taxpayers, as they are not only charged with the surcharge but also unable to receive refunds due to them during that time period.
Would Penalty-Free Window Be Extended for Filing Failures?
Every idea that was mentioned together with the idea of introducing fines for excess tax credit did not receive an agreement of all the committee members. There was another idea to extend the time for imposing penalties for failure to file taxes to three months.
Rationale for the Proposal
The rationale behind the proposal takes into account a more sympathetic approach to non-compliance. Members of the committee argued that sometimes illness or even the death of someone in the family can stop a person from filing their returns, and to penalize them instantly would be wrong.
This is a more nuanced approach in the same hearing that gave rise to the penalty for excess tax credit as well as the drastic hike in the ATL surcharge. It seems that the committee is ready to make a distinction between those who have deliberately failed to comply and those in genuine difficulties.
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Fines in Case of Failure to Heed FBR Notices
It was at this meeting of the Committee that the Federal Board of Revenue also indicated their plans of increasing restrictions on both filers and non-filers. An FBR representative has said that in case taxpayers do not heed FBR notices, they will face heavy fines.
The penalty structure will increase with every violation. The first time around the violator will be penalized with a penalty of Rs1 million, which is a very high amount intended to make sure that taxpayers do not disregard FBR letters. If the same violation takes place again then the violator will face a penalty of Rs2 million.
This increasingly heavy punishment regime is similar to the reasoning behind the excess tax credit penalty and surcharges on the ATL because the tax officials in Pakistan have created a regime of compliance where there are heavy repercussions that depend on how serious and how often the violation takes place.
What Does This Mean For The Taxpayers Of Pakistan?
It is very clear from the measures adopted and the proposed measures taken by this committee meeting that there seems to be a definite trend in the making. It includes the excess tax credit penalty, the high amount of ATL surcharge as well as the hefty penalties proposed in case of non-compliance notices.
It is safe to say that this would not make much of a difference for honest taxpayers — since there will be no impact on their proper filling and submission process due to penalty designed explicitly for non-compliance. This is because for those who had been taking advantage of overstated credit, late filing, or ignoring letters from FBR, this has become quite different from what used to be. In fact, the new penalty scheme on delayed filing now carries serious implications.
Such proposed actions can be considered measures that have been approved by the committee and thus require more legislative actions before they can take full legal force in Pakistan’s taxation framework. The Standing Committee on Finance approval is an important step, but there is usually much more to go through before the penalties become legally binding laws.
Taxpayers of Pakistan, especially corporate bodies, associations of persons, and individuals who have been out of the scope of Active Tax Payer List on account of late filings, should take notice of this early indication that would serve them as a heads-up regarding the imposition of a new penalty in the form of excess tax credit fine and a new structure of surcharge.
Nayab Fatima is a university graduate and an emerging media professional with a strong passion for journalism, research, and independent reporting. She specializes in developing well-researched, fact-based, and analytical news stories covering a wide range of sectors, with particular expertise in technology, telecommunications, aviation, and the automobile industry.
