Allowing non-filers to purchase property, motor vehicles termed counterproductive for broadening of tax base

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KARACHI: Leading audit firms have criticized the government policy for allowing non-filers of income tax returns to purchase motor vehicles and immovable properties and said such a policy will discourage documentation of economy.

Finance Minister Asad Umar while unveiling Finance Supplementary (Amendment) Bill – 2018 on September 18 announced withdrawal of restriction imposed on non-filers for purchasing immovable properties and motor vehicles.
“It appears that the revision in policy has been made owing to persistent pressure from automakers and builders who strongly opposed this amendment on premise of curbing fundamental rights and hampering their business,” Deloitte Pakistan – a Chartered Accountant firm said in its commentary.
It said that the concept of filer and non-filer was introduced in Income Tax Ordinance, 2001 through Finance Act, 2014 with respect to return of total Income. “The very purpose of introducing this concept was to encourage documentation and to penalize non-filers through higher incidence of withholding tax rates in order to persuade them to become filer and claim the excess withholding tax as refundable on achieving filer status,” it added.
The previous government in its last budget announced Section 227C to Income Tax Ordinance, 2001 through Finance Act, 2018 in order to restrict the purchase of immovable property exceeding value of Rs5 million and imported and newly manufactured motor vehicles by non-filers.
However, Finance Supplementary (Amendment) Bill-2018 proposed by the new government, under which section 227C is proposed to be deleted being a departure from the policy of previous government when for the first time non-filers were barred from economic activity, the audit firm added.
The finance minister in his speech has explained that such restriction had created difficulties for overseas or non-resident Pakistanis, as they were not required to file tax return for their foreign-source income but were restricted from buying property or motor vehicle in Pakistan.
A. F. Ferguson & Co. Chartered Accountants firm said that introduction of section 227C was a fundamental step to curb parking of untaxed money in acquisition of immovable property and new motor vehicles, to broaden the tax base and increase number of tax filers. “The practical problem as highlighted by the finance minister could have been addressed by appropriately amending the law, instead of altogether abolishing section 227C,” according to the audit firm.

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  • The simple solution for allowing expats for buying immovable property and automobiles is to make mandatory NICOP instead of allowing all non-filers to buy property and cars.