Aide to finance minister outlines tax reforms

KARACHI: The government has launched a sweeping set of tax reforms aimed at narrowing the country’s substantial tax gap, estimated at Rs7.1 trillion. Adviser to the Finance Minister Khurram Schehzad outlined key measures in a detailed series of posts on X (formerly Twitter), highlighting the Federal Board of Revenue’s (FBR) compliance and enforcement strategies.

What lies in the centre of the reform effort is the targeting of high-value non-filers. With 4.9 million non-filers identified through data from banks, property registries, vehicle records and telecom spending, the government has used algorithms to categorise these individuals into actionable clusters.

Of these, the top 5.0 per cent of earners, representing 3.3 million individuals, owe over Rs1.6 trillion in taxes. However, only 0.8 million of these high-income earners file returns, leaving 2.7 million unaccounted for. Notices have already been issued to 169,000 affluent non-filers, with enforcement plans extending into 2025.

High-value non-filers include those with annual bank profits exceeding Rs1.3 million, ownership of three or more vehicles, or deposits over Rs28 million. A digital dashboard has been deployed to monitor enforcement progress.

To combat systemic tax evasion, the FBR is establishing linkages with major value chains in industries such as sugar, cement, textiles and beverages. Advanced technologies, including video-based production monitoring and track-and-trace systems, are being employed to reconcile sectoral data with tax filings, Schehzad unveiled in his post.

The sugar industry, for instance, is already under scrutiny, with data from video analytics and track-and-trace solutions monitored centrally. Similar measures will soon expand to other priority sectors.

Automation plays a pivotal role in curbing sales tax evasion. Businesses engaging in fraudulent input tax adjustments have been identified using network analytics tools that trace transactions across sales chains. This innovation reduces auditing time from days to minutes, boosting the FBR’s ability to identify and address fraudulent practices.

According to the adviser, a new system of faceless assessments aims to eliminate collusion between importers and appraisers. Goods Declarations (GDs) are now randomly assigned to a centralised pool of sanitised appraisers. Enhanced monitoring, including body cameras, ensures transparency, with 80 per cent of Karachi’s import volume already covered under the system. The initiative will expand nationwide by 2025. The Tax Amendment Bill 2024 introduces stricter penalties for non-compliance. Non-filers will be barred from purchasing vehicles exceeding 800cc, opening bank accounts, buying property beyond specified limits, or acquiring shares. These measures signal the government’s resolve to end the culture of tax evasion. While acknowledging that reforms are a work in progress, Schehzad said that Pakistan is on the “right track” to creating a balanced and effective tax system. By combining targeted enforcement, advanced automation, and legislative changes, the government aims to enhance tax compliance and boost revenue collection.