The Federal Board of Revenue (FBR) is firing on all cylinders to formalize the informal sector by closing the window for non-compliant individuals.
Talking to WealthPK, Bakhtiar Muhammad, Member Public Relations FBR, highlighted their two-pronged strategy to ensure tax compliance.
“We are working on two fronts: first, we are actively encouraging people to file their returns; second, we are compelling those who are legally required to file their returns but are unwilling to do so.”
The people not filing their returns probably have untaxed money, which creates problems for the government. The untaxed money is only used for investment or spending, and we aim to eliminate both the options for individuals not filing their returns.
“By preventing them from spending or investing the untaxed money, we force them to file their returns. Such individuals will no longer be able to buy plots, purchase vehicles, fly internationally, or even open bank accounts. Their use of cash will also be limited,” he said.
Bakhtiar said there would be no limitations for taxpayers who file returns and invest tax-paid money, or “white money.”
“Those investing legitimately earned and taxed money will not encounter any problems. However, if someone is investing untaxed money, they must disclose the source of funds. The FBR will assist those who comply and file returns to promote lawful investments,” he told WealthPK.
He said despite significant obstacles, the “Tajir Dost” program, aimed at bringing the small traders into the tax net, was progressing.
“The scheme is progressing well, and any related issues will be resolved.”
This initiative is part of the FBR’s broader plan to reduce the size of the informal sector, which has long evaded tax payments, contributing to Pakistan’s ongoing budget deficit.
As part of comprehensive economic reforms, the government faces pressure to broaden the tax base, especially after the recent agreements with international lenders such as the International Monetary Fund (IMF), which have called for stricter measures to enhance revenue collection.
Therefore, the FBR’s strategy is part of a more extensive tax restructuring to formalize the economy, especially given the country’s increasing debt and unstable financial system.
The government aims to incentivize individuals and businesses to pay taxes by limiting opportunities to use the untaxed money for spending and investment.
This is expected to increase tax revenue. However, the FBR’s primary focus will be on effectively enforcing these programs and ensuring that the low-income individuals and small businesses are not disproportionately burdened by compliance.
The success of the Tajir Dost program will be crucial for determining how well the government can balance economic participation and enforcement.