FBR raises penalties to curb tax non-compliance

Updated June 18, 2019

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FBR has introduced eight new penalties to be included in the Income Tax Ordinance, 2001 through the finance bill. — APP/File
FBR has introduced eight new penalties to be included in the Income Tax Ordinance, 2001 through the finance bill. — APP/File

ISLAMABAD: The Federal Board of Revenue (FBR) has proposed massive increase in the penalty rates as part of the move to broaden tax compliance in the country.

Through Finance Bill 2019, FBR even introduced eight new penalties in the Income Tax Ordinance, 2001 which will be made part of the law after parliamentary approval.

The FBR proposed four new sections to penalise all those financial institutions which did not provide information regarding non-residents timely, as required under section 165B of the income tax ordinance.

Under the Organisation of Economic Cooperation and Development Tax Convention, Pakistan has started sharing and receiving tax information with member states. In the first year, the country has received tax-related information from almost 28 nations in September 2018. Pakistan is also bound to reciprocate and share details of non-residents with member countries.

To make it binding for financial institutions to share timely information with FBR, the government proposed a set of four penalties for non-compliant entities. In case of non-compliance with the provisions of 165B of the ordinance or common reporting standard rules, a financial institution will pay a penalty of Rs10,000 for each default and an additional Rs10,000 each month until default is addressed.

The financial institutions which file an incomplete or inaccurate report will also face a penalty of Rs10,000 for each default and an additional Rs10, 000 per month until it is addressed.

A same charge will be imposed on those institutions which fail to obtain valid self certification or new accounts or furnishes false self-certification made by reportable jurisdiction person.

Similarly, a reportable jurisdiction person who fails to furnish valid self certification or furnishes false self-certification under common reporting standard rules will face a penalty of Rs5,000 for each default and an additional Rs5,000 per month until the default is redressed.

As part of the new penalties, FBR will collect a charge of 5pc of the value of property determined by FBR or the provincial government for the purpose of stamp duty, whichever is higher, from those who purchase immovable property having market value greater than Rs5m through cash or bearer cheque.

FBR will collect a penalty of Rs100,000 or an amount equal to 200pc of tax which the offshore tax evader sought to evade, whichever is higher. However, a penalty will be imposed after proceedings before any income authority or the appellate tribunal.

A penalty of Rs300,000 or an amount equal to 200pc of the tax which was sought to be evaded, will be imposed on those people who enabled, guided, advised or managed any person to design, arrange or manage a transaction or declaration in such a manner which has resulted or may cause offshore tax evasion. Similarly, a penalty of Rs100,000 or an amount equal to 100pc of the tax, whichever is higher, will be charged from any person who is involved in an asset move from a specified territory to an unspecified one.

The penalty rates of the existing seven were also increased. It has been enhanced to Rs40,000 from Rs20,000, where any person fails to furnish a return of income. In case, wealth statement or reconciliation statement is not filed, such a person will pay a penalty of 0.1pc of the taxable income per week or Rs100,000, whichever is higher, from Rs20,000.

The charge was raised to Rs10,000 from Rs5,000 on a person who fails to make an application for registration.

Published in Dawn, June 18th, 2019