Government Targets High Net Worth Individuals in Tax Reform Push

Finance Minister Muhammad Aurangzeb on Thursday outlined the government’s plan to digitize the Federal Board of Revenue (FBR) to bring high net worth individuals (HNWIs) into the tax net.

So far, the FBR has issued tax notices to 186,000 HNWIs who possess significant assets, income, and vehicles but fail to contribute adequately. Among the wealthiest 5%—around 670,000 individuals—an estimated 0.6 million are potential tax evaders being monitored by tax authorities.

When asked whether the government would introduce a mini-budget or seek IMF approval to lower the FBR’s tax collection target amid a Rs0.34 trillion shortfall, the finance minister refrained from a direct response. He stated that the government would demonstrate to the IMF its genuine efforts and share relevant details during the upcoming review talks, citing inflation assumptions that shifted unexpectedly.

Joined by Information Minister Ataullah Tarar, State Minister Ali Pervez Malik, and FBR Chairman Rashid Mahmood Langrial, the finance minister emphasized that the National Fiscal Pact, signed by the Centre and provinces, would be implemented collaboratively. Punjab passed the Agriculture Income Tax (AIT) law, while other provinces are progressing at varied stages.

The finance minister highlighted the FBR’s 29% revenue growth, although the current fiscal target requires an ambitious 40% increase. Explaining the focus on HNWIs, the FBR chairman noted that 190,000 non-filers were identified using six criteria, including earning Rs1.3 million in annual bank profit, owning vehicles worth Rs10 million, conducting property transactions worth Rs16 million, withdrawing Rs3.5 million annually, and maintaining deposits of Rs28 million or more across two bank accounts.

The FBR chairman estimated potential tax collections of Rs50-60 billion from these individuals but admitted that tax laws must follow due process, not criminal enforcement. Official data reveals that tax notices were sent by RTO Lahore to 38,828 individuals, RTO-II Karachi to 15,000, and LTU Karachi to only 75.

Regarding digital transformation updates, the FBR reported a tax compliance gap of Rs7.1 trillion, including Rs4.1 trillion in sales tax, Rs2.4 trillion in income tax, and Rs0.6 trillion in customs duty. Of the 190,000 targeted, only 38,002 filed returns, depositing Rs377.62 million.

Acknowledging short-term revenue shortfalls, the finance minister stressed the need to expand the tax base beyond salaried and formal manufacturing sectors, urging retailers and others to comply. He reiterated plans to increase the tax-to-GDP ratio from the current 9-10% to 13.5% over five years.

The FBR chairman highlighted recent actions against the sugar sector and introduced faceless assessments to reduce collusion between importers and customs officials. He announced the restructuring of PRAL’s board, the allocation of Rs4 billion for new hiring, and plans to recruit 550 auditors to enhance efficiency.