Pakistan to Ban International Travel for Non-Taxpayers: Senate Committee Approves Proposal

The government of Pakistan is planning to ban international traveling for non-taxpayers. The Senate Standing Committee on Finance has approved a proposal to veto non-filers from traveling abroad.

During a meeting chaired by Senator Mr. Salim Mandviwala, an important decision was made affecting individuals who do not file their tax returns. According to the Chairman of the Federal Board of Revenue (FBR), actions against non-filers will be enforced under the Income Tax General Order (ITGO). Exceptions will be made for individuals performing Hajj and Umrah (Religious Rituals), young children, students, and overseas Pakistanis holding the National Identity Card for Overseas Pakistanis (NICOP).

Besides the travel ban, non-filers will face disconnection of their mobile SIMs, electricity, and gas connections. Senator Farooq H. Naik highlighted that this measure should be regarded as equivalent to being placed on the exit control list (ECL). Mr. Naik also said that non-filers already face higher withholding tax rates and risk having their mobile and business operations suspended.

Chairman Federal Board of Revenue Mr. Malik Amjad Zubair disclosed that the list of 500,000 non-filers includes individuals with an annual income exceeding Rs 2 million, who had previously declared their income in tax returns. Those who file tax returns temporarily to purchase assets such as cars, plots, or houses will also be subject to additional taxes.

Mr. Amjad Zubair clarified that there are no immediate travel restrictions on non-filers as proposed in the federal budget presented by the government for the next fiscal year on June 12. He stated that prior notice and inclusion in the Income General Tax Order (ITGO) would be prerequisites for such action(s).

The FBR chairman clarified that the requirement to link the National Tax Number (NTN) with passports for international travel would only apply after due notice and inclusion in the Income Tax General Order, alleviating public concerns about immediate travel restrictions.

It is worth mentioning that while announcing the federal budget, the government proposed a series of measures to penalize individuals and businesses that do not file income tax returns, including the possibility of blocking them from foreign travel. These measures seem to be another attempt by the government to compel non-filers to submit their tax returns for better documentation of the economy.

In his speech on the floor of the National Assembly on June 12, Federal Finance Minister Mr. Muhammad Aurangzeb stated that the government aims to increase the tax base and widen the tax-to-GDP ratio through these measures. The finance bill proposes amendments to Section 114B of the Income Tax Ordinance, 2001, to prevent non-filers from traveling abroad. Sub-clause 2 of the said section already empowers the FBR to disable mobile phone SIMs and disconnect electricity and gas connections for non-filers.

If the proposal is passed by parliament, a “citizen of Pakistan” who is required to file tax returns but fails to do so can be barred from traveling abroad.

Implementing agencies that defy orders to take any of these three punitive actions will face a penalty of PKR100 million, with an additional PKR 200 million penalty for each subsequent disobedience.

The Senate finance committee members were informed about the introduction of a new category called “late filer” under the Income Tax Ordinance, targeting individuals who periodically file returns without consistent adherence. The committee emphasized the need for stricter penalties, proposing a 10% tax levy and the withdrawal of previous concessions.

Additionally, the committee members discussed advertising expenses related to brand royalties, expressing reservations about the proposed clauses affecting local investors and ownership control thresholds.

In response to queries regarding income tax on imports, the committee members expressed astonishment over the proposed methods for determining minimum taxable values, advocating for customs evaluations as the standard practice. They expressed reservations and deferred the amendments for further review alongside sales tax amendments. Similarly, proposals regarding property tax extensions for ex-FATA (Federally Administered Tribal Area) and ex-PATA (Provincially Administered Tribal Area) were postponed pending reconsideration.

The committee also addressed concerns regarding the 18% GST (General Sales Tax) levies on packaging items and locally processed milk products, advocating for reductions to alleviate consumer burdens, particularly on essential items such as infant formula milk.

In a notable exchange, PPP Senator Ms. Sherry Rehman emphasized the need for equitable tax distribution among corporations, advocating against shifting tax burdens onto consumers for products like formula milk.

The Senate committee meeting was attended by Ms. Sherry Rehman, Mr. Mohsin Aziz, Ms. Anusha Rahman, Mr. Ahmad Khan, Mr. Shahzab Durrani, Mr. Farooq H. Naek, Mr. Shibli Faraz, and Mr. Munzoor Ahmed Kakar.

The government of Pakistan plans to generate an additional PKR 75 billion in the next fiscal year by raising taxes on the salaried class, who have already contributed PKR 360 billion this year. Despite reducing electricity costs for industrialists by PKR 240 billion, there is pressure to reconsider the decision to apply standard income tax rates to exporters.

A proposal suggests gradually increasing the income tax burden on exporters, who paid PKR 85.5 billion in the first 11 months of this fiscal year, potentially reaching PKR 100 billion by June’s end. However, any tax relief for exporters may be controversial, especially amid widespread heavy taxation affecting all segments of society.