President Arif Alvi has promulgated an ordinance to give National Accountability Bureau (NAB) and National Database and Registration Authority (Nadra) access to taxpayers’ data from 2001 onwards, which may carry long lasting implications for political and economic horizons.
The Tax Laws (Third Amendment) Ordinance 2021 has also empowered the Federal Board of Revenue (FBR) to disconnect mobile phone and electricity connections of the non-filers of the income tax returns, according to the ordinance.
While confirming promulgation of the ordinance, Minister of State for Information Farrukh Habib said that the amended law would empower FBR to collect due taxes from filers and non-filers with help of Nadra.
He said one million filers who paid zero tax will now have to pay actual tax liabilities based on Nadra data information
In order to promulgate the ordinance, the federal cabinet approved the summary through circulation, without discussing it in a full cabinet meeting.
While speaking on condition of anonymity, a top functionary of the FBR also confirmed to The Express Tribune that the president had issued the ordinance.
In a major development, the government has deleted section 198 of the Income Tax Ordinance of 2001 to give NAB access to the data of the taxpayers.
“Section 198 shall be omitted and shall always be deemed to have been so omitted since the commencement of the Income Tax Ordinance, 2001”, according to the ordinance.
The omitted section 198 said, “A person who discloses any particulars in contravention of Section 107 or Section 216 shall commit an offence punishable on conviction with a fine of not less than Rs500,000 or imprisonment for a term not exceeding one year, or both.”
In June this year, the NAB had asked the government that income tax law “be suitably amended so that immunity available to exposed persons including the members of parliament, bureaucracy, public servants and people in service of Pakistan, public office holders and their spouses and children may be done away with”.
For the purpose, the bureau had recommended four major amendments in the Income Tax Ordinance 2001 through the Finance Bill 2021 including section 198, showed the NAB documents available with The Express Tribune.
After the amendment, the NAB can reopen the past and closed transactions of the last 20 years. The opposition parties have been alleging arm-twisting by the anti-corruption watchdog on behalf of the government.
The national graft buster will now get access to even offshore tax data, shared by the Organisation for Economic Cooperation and Development with Pakistan.
When contacted, FBR Chairman Dr Mohammad Ashfaq maintained that the OECD data cannot be shared as it was protected under sovereign agreement. He maintained that the taxpayers’ sanctity will be protected and the data would only be used for the purpose of tax collection.
In its official correspondence, NAB had argued that the National Accountability Ordinance empowered its authorities to seek information for the purpose of evaluating as to whether there had been any contravention of the provisions of NAB ordinance or not.
The bureau had stated that the retroactivity was necessary so that the omission clearly lifted the immunity for events or actions that may have already taken place so that NAB may inquire or investigate them.
However, sources said that the FBR move was prone to legal challenges due to sharing of the data from 2001 and also treating civil cases under criminal NAB law. They said the FBR was under extreme pressure to share the data with the NAB.
Disconnection of essential services
The ordinance showed that the government had also empowered the FBR to disconnect mobile phones, electricity and gas connections of non-filers of income tax returns and barred businessmen from using banking instruments like cheques in its desperate attempts to broaden a narrow tax base.
Through an Income Tax General Order, the FBR will first declare persons who are not appearing on the active taxpayers list liable to file return. If they do not file the returns, then the FBR will ask the concerned service providers to disable mobile phones service and disconnect electricity and gas connection, the sources said.
Through the ordinance, similar powers to suspend electricity and gas connections of non-filers of sales tax returns have also been given to the FBR through amendment in the Sales Tax Act of 1990.
The government also slapped a 35% additional income tax on electricity bills of non-filers lawyers, dentists, doctors, accountants, engineers, architects, IT professionals, tutors, trainers and other persons engaged in provision of services.
The step had been taken to broaden the narrow tax base comprising only three million income tax return filers, after all previous efforts and policy actions failed to yield the desired results.
The compulsory digital mode payment has been introduced for the corporate sector. The step was taken after businessmen and companies started trading bank cheques instead of en-cashing them to avoid full disclosure of their sales.
The government amended section 21 of the Income Tax Ordinance, which said that no deduction shall be allowed in computing the income of a person under the head “Income from Business” by a taxpayer not being a company.
Similarly, any expenditure by a taxpayer being a company for a transaction, paid or payable under a single account head which, in aggregate, exceeds Rs250,000 made other than by digital means from the business bank account of the taxpayer will be treated as income instead of expenditure.
The only exemption from the digital payment will be small payments of up to Rs25,000 and expenditures on account of utility bills, freight charges, travel fare and payment of taxes.
The government has decided to enforce digital mode of payments without first plugging loopholes that led to creation of black money like difference between market value and FBR values of properties, agriculture income tax exemption and tax-free foreign remittances.
Giving NADRA access
The government has included a new section 175B in the Income Tax Ordinance to hand over all data of existing as well as non-existing taxpayers to Nadra to broaden the tax base. Earlier, the powers were only limited to the extent of the unregistered persons.
“The National Database and Registration Authority shall, on its own motion or upon application by the Board, share its records and any information available or held by it, with the Board, for broadening of the tax base or carrying out the purposes of this Ordinance”, according to the ordinance.
“NADRA will enter into a memorandum of understanding with FBR for a secure exchange and utilisation of a person’s information”.
As opposed to the original draft, new FBR chairman Dr Ashfaq managed to retrieve some of the powers. Against the original proposal that on the basis of FBR information Nadra will access the tax liability and ask the taxpayer to discharge its obligation, the ordinance showed that all such work will be done by the FBR after input from Nadra.
The government also gave a legal cover to an “illegal act” of the past by the FBR when its officers shared information with Nadra without any legal basis.
Sources revealed that in 2019, FBR had discreetly handed over the tax record of income tax return filers for the period 2014 to 2018 to Nadra.
For the last almost a decade, Nadra had been claiming that it could help achieve the objectives of broadening the tax base and increase the tax collection through artificial intelligence-based mathematical models.