The federal government is set to unveil stringent measures targeting individuals who fail to file their income tax returns in the upcoming budget for fiscal year 2025-26. Proposed new legislation aims to significantly restrict the economic activities of non-filers, marking a renewed push for tax compliance and documentation of the economy.
According to reports, a proposed Tax Laws (Amendment) Bill, 2024 is expected to be integrated into the Finance Bill 2025. This move signals a significant step towards enforcing stricter fiscal controls on non-filers.
Proposed Restrictions Under Section 114C
A key element of the proposed changes is the introduction of Section 114C under the planned amendment. This section would empower the Federal Board of Revenue (FBR) to impose severe limitations on various financial transactions conducted by individuals who are not registered income tax filers.
However, the implementation of these proposed restrictions has faced delays. The primary obstacle cited is the current lack of a fully developed and robust digital infrastructure within the FBR capable of effectively enforcing such measures.
Technological Readiness and Implementation Delay
FBR Chairman Rashid Mahmood Langrial recently acknowledged the technological gap and requested a two-month period to finalize the necessary system upgrades. This timeframe is intended to ensure the FBR possesses the technological capability required to implement and manage the proposed restrictions before the budget announcement.
The National Assembly Standing Committee on Finance had previously deferred the implementation of Section 114C in February 2025. The committee’s directive mandated the FBR to first provide a live demonstration of its systems’ readiness to support the enforcement of the new rules.
Government Commitment to Documentation
Despite the delay, the government has reiterated its commitment to bringing non-filers into the tax net. Former Minister of State for Finance, Ali Pervaiz Malik, assured the committee that efforts were underway to integrate enforcement tools within the FBR’s digital platforms. He highlighted a historical issue of insufficient prosecution of non-filers and stated that the upcoming budget would address this by embedding compliance mechanisms directly into the tax system.
“The tax system cannot function if we continue to use non-filers merely as revenue spinners without ensuring legal accountability,” Malik emphasized, indicating a shift in strategy towards mandatory compliance rather than just punitive measures after non-filing. He confirmed that the deferment would not impede the broader objective of documenting untaxed assets and individuals.
Cross-Agency Collaboration and System Demonstration
To ensure the new system is functional and ready before the budget announcement, expected in June 2025, the FBR is leveraging its existing data on property transactions. The board plans to collaborate closely with the National Database and Registration Authority (NADRA), provincial excise departments, and land authorities. A live demonstration of the online application designed to enforce the new measures is anticipated within the next two months. The success of this demonstration will be crucial in finalizing Section 114C for inclusion in the budget package.
Furthermore, the Revenue Division has been advised to refine Clause 5(a) of the proposed legislation. This refinement is particularly aimed at clarifying definitions related to “cash and equivalent assets” to ensure greater precision and avoid ambiguity before the clause is incorporated into the budget.
