Non-Compliant Individuals Face Barriers to Property, Vehicles, and Investments

In a significant move aimed at formalizing the economy and aggressively broadening the tax base, the federal government has introduced stringent new restrictions on individuals deemed “ineligible persons” for various economic transactions. These comprehensive measures, outlined in sections of the budget, will create considerable barriers for those who fail to comply with tax filing requirements.

The new framework specifically defines who is considered “eligible” and “ineligible” for participation in key financial and asset-related activities, with strict penalties for non-compliance.

New Restrictions on “Ineligible Persons” (Section 114C)

Under the newly inserted Section 114C, individuals categorized as “ineligible persons” will face an inability to engage in several crucial economic transactions, regardless of other laws currently in force:

Motor Vehicle Purchases: Manufacturers of motor vehicles and vehicle registering authorities (Excise and Taxation Departments) will not accept or process any application for booking, purchase, or registration of a motor vehicle by an ineligible person.
Immovable Property Transfers: Any authority responsible for registering, recording, or attesting the transfer of immovable property will not accept or process applications or requests from an ineligible person, particularly for property exceeding a value to be notified by the Federal Government. This clause will only become effective once the specified value is notified.
Securities and Mutual Funds: Persons authorized to sell securities (including debt securities) or units of mutual funds, as well as those authorized to open and maintain accounts or clear such transactions, are explicitly prohibited from selling, opening an account, or clearing the sale of securities or mutual funds to an ineligible person (being an individual or an association of persons).
Banking Company Restrictions: Banking companies will face specific limitations:
- They shall not open or maintain (if already opened) certain current, saving bank, or investor portfolio securities accounts for persons as may be notified by the Board (excluding Asaan accounts and Pensioner Accounts).
- They shall not allow cash withdrawals from any bank accounts of any person exceeding an amount to be notified by the Board.

Defining “Eligible” and “Ineligible” Persons

For the purposes of these new restrictions, precise definitions have been provided:

“Eligible Person”: An individual qualifies as an “eligible person” if they have:
- Filed a return of income for the immediately preceding tax year, demonstrating “sufficient resources” in their wealth statement (for individuals) or financial statement (for companies/AOPs) for the transaction.
- OR Filed a “sources of investment and expenditure statement” specifically declaring “sufficient resources” and providing an explanation for a particular purchase or investment transaction covered by the restrictions.
- Note: For individuals, “eligible person” also includes their “immediate family members” (parents, spouse, and dependent children).
“Ineligible Person”: Simply put, an “ineligible person” is defined as anyone who does not meet the criteria of an “eligible person.”
“Sources of Investment and Expenditure Statement”: This refers to a declaration filed by a person on the Board’s web portal, specifically detailing the sources of funds used for a particular transaction.

What Constitutes “Sufficient Resources”

“Sufficient resources” is explicitly defined as one hundred and thirty percent (130%) of the cash and equivalent assets. These assets include:

Cash denominated in local or foreign currency.
Fair market value of gold.
Net realizable value of stocks, bonds, receivables, or any other prescribed cash equivalent asset.

These resources must be declared either in the “sources of investment and expenditure statement” or in the wealth statement filed for the latest tax year. For companies or associations of persons, these assets must be declared in the financial statements attached with the income tax return for the latest tax year.

Proviso for Asset Exchange: If a restricted asset (other than certain banking transactions) is purchased through the exchange of capital assets already declared in a wealth statement, financial statement, or sources of investment and expenditure statement, the disposal of those capital assets will be treated as part of cash equivalent assets to the extent of the value mentioned in the agreement.

Exemptions and Exclusions from Restrictions

Crucially, the provisions of Section 114C (excluding the banking restrictions related to account maintenance and cash withdrawals) will not apply to certain transactions:

Purchase of all rickshaws, motorcycles, and tractors.
Purchase of a pick-up vehicle with an engine capacity up to 800 CC.
Purchase of other motor vehicles (excluding rickshaws, motorcycles, tractors, trucks, and buses), subject to restrictions and limitations notified by the Board.
Investment in securities up to a limit notified by the Board.
Transactions made by a non-resident person or a public company (with an exception for banking-related restrictions).

Implementation and Legal Nuances

It is clarified that the “sources of investment and expenditure statement” and the “sufficient resources” mentioned will not be construed as the nature and source of income for the purposes of Section 111 (which deals with unexplained income or assets).

Furthermore, all or any of the restrictions imposed under Section 114C (1) will come into force only as the Board may appoint by notification in the official Gazette, with the approval of the Federal Government. This phased implementation allows for necessary preparations and public awareness.

These new regulations represent a firm stance by the government to enhance tax compliance and formalize transactions across significant economic sectors, compelling individuals and entities to integrate into the documented economy.