The government is considering a 20% income tax on offshore digital services. It plans to implement strict legal measures, including a 10-year prison sentence for sales tax fraud and the empowerment of junior Federal Board of Revenue (FBR) officers, who can detain suspects without prior authorization from senior officials.
Additionally, the government plans to give FBR officers the authority to request that individuals involved in tax fraud be included on the Exit Control List (ECL) during investigations to prevent them from leaving the country.
These steps are part of further amendments to the Tax Laws Amendment Bill 2024, which aims to stiffen penalties for tax fraud, non-filers, and ineligible individuals. The proposed changes, now under review, suggest extending existing restrictions on purchasing property and vehicles to include agricultural tractors for those ineligible under the tax compliance rules.
Finance Minister Muhammad Aurangzeb introduced the bill in the National Assembly last month. It is awaiting a final vote. The National Assembly Standing Committee on Finance will review these amendments today (Tuesday).
Sources indicate that the government may introduce new amendments to the Tax Laws Amendment Bill before its passage, pending approval from the Pakistan Peoples Party (PPP), a key ally.
One significant change under consideration is doubling the income tax rate for fees from offshore digital services from 10% to 20%. The government has proposed creating a new category, “fee for offshore digital services,” covering online advertising, website design, digital content creation, and e-commerce operations targeting Pakistani users.
The bill also aims to prevent tax evasion by barring certain individuals from making significant purchases. This restriction would not apply to motorcycles, rickshaws, other three-wheeled vehicles, motor vehicles with engines up to 800 CC, electric vehicles with batteries up to 50 kWh, and investments in securities up to limits specified by the FBR.
The government initially allowed ineligible persons to purchase agricultural tractors, but the latest amendments propose removing this exemption.
Settling Old Tax Cases
The government is also considering forming a Review Committee of experts to resolve long-standing tax cases pending in high courts across Pakistan. This committee would review all reference applications and make binding recommendations to the FBR commissioner on whether to file new applications or withdraw existing ones.
New Definition of Tax Fraud
The FBR may introduce a new definition of “tax fraud” to include various fraudulent activities, such as understating taxes, overstating tax credits, submitting false returns, and making fictitious sales tax returns. The proposed penalties for tax fraud could include up to 10 years in prison, fines up to Rs 10 million, or both.
Read: FBR Plans Purchase of 1,010 Vehicles to Boost Field Operations
The government plans to redefine “abettor” to include anyone who aids or conspires in tax fraud, subjecting them to the same penalties as the primary perpetrators.
A crucial aspect of the proposed amendments is allowing junior FBR officers to arrest suspects in tax fraud cases without prior approval, provided they report the arrest to the commissioner immediately. The commissioner retains the authority to release the suspect if the arrest is deemed unwarranted and to initiate disciplinary actions against the responsible officer.
