Senate Approves Tough Tax Law to Curb Non-Filers and Strengthen Compliance

A Senate committee on Thursday approved a proposed law mandating the closure of bank accounts for non-filers with balances exceeding Rs1 million and requiring even filers to justify the source of funds for purchasing property or vehicles.

The Senate Standing Committee on Finance unanimously supported the Tax Laws Amendment Act 2024 with amendments to tighten provisions. The bill will now be presented in the National Assembly for approval. Chaired by Senator Saleem Mandviwalla (PPP), the session included members from PML-N and PTI.

The legislation introduces a distinction between eligible and ineligible persons, barring even some filers from purchasing homes, vehicles, or shares and maintaining bank accounts. Eligible individuals will be allowed transactions up to 130% of the value of assets declared in prior tax returns.

Non-eligible persons will be restricted from owning bank accounts with over Rs1 million, withdrawing beyond a certain limit, or purchasing property or cars without source verification. Finance Minister Muhammad Aurangzeb explained these restrictions, acknowledging that post-purchase audits under the current law failed due to the FBR’s limited capacity.

Senator Shahzaib Durrani criticized the move, saying it could drive individuals away from formal systems. PML-N Senator Anusha Rahman suggested expanding restrictions to include gold purchases and requiring sellers of property to verify sources of income.

Under Section 114C, non-eligible persons will be restricted to vehicles below 800cc, such as rickshaws, tractors, and trucks. They will also be required to convert their accounts to Asaan accounts, capped at Rs1 million, if they fail to meet eligibility criteria.

The legislation could significantly impact the real estate sector, warned the finance minister, citing discussions in the housing sector task force, which is reviewing taxes on real estate and construction. Rahman recommended applying these measures to Defense Housing Authority (DHA) transactions where property ownership remains unregistered in the buyer's name. FBR Chairman Rashid Langrial confirmed that the law would apply to DHA and that eligibility checks would occur when rights to property are transferred.

Langrial disclosed that all bank accounts of ineligible persons, except Asaan accounts, will be closed under the new law. The SBP will compile complete details of individuals’ bank accounts within 2-3 months to enforce the changes.

Additionally, the government seeks authority to share taxpayers’ data with banks, which will be required to provide account details of individuals where discrepancies are detected through data algorithms.