Pakistan’s Federal Board of Revenue (FBR) has taken a significant step in the fight against black money and unexplained funds in the country by releasing an updated tax law. The new Income Tax Ordinance, 2001, updated up to June 30, 2023, incorporates recent tax amendments made through the Finance Act, 2023, with a focus on addressing the treatment of undocumented money under Section 111 of the Income Tax Ordinance, 2001.
Under the revised Section 111, the FBR outlines clear guidelines for dealing with unexplained income, assets, expenditures, and income concealment. Any amount credited in a person’s books of account, investments made, or expenditures incurred without offering a satisfactory explanation about their nature and source will be considered as income chargeable to tax under the head “Income from Other Sources” if inadequately explained.
Moreover, if a taxpayer attempts to suppress any production, sales, or any amount liable to tax, and provides an unsatisfactory explanation, the undisclosed amounts will be included in the taxpayer’s income chargeable to tax under the head “Income from Business” to the extent that they remain unexplained.
The updated law does offer provisions for taxpayers who can provide reasonable explanations for their financial activities. For example, if a taxpayer can explain the nature and source of an amount credited or investment made as agricultural income, the explanation will be accepted to the extent of agricultural income tax paid under the relevant provincial law.
Regarding undisclosed foreign assets or expenditures, the law specifies that if such investments or expenditures are discovered by the Commissioner and are situated or incurred outside Pakistan, they will be included in the taxpayer’s income chargeable to tax for the preceding tax year.
The FBR has also set a threshold for the exemption of certain foreign exchange remittances. Any amount of foreign exchange remitted from outside Pakistan through normal banking channels, not exceeding five million Rupees in a tax year, and en-cashed into Rupees by a scheduled bank, will be exempted from the provisions of this section.
To ensure effective execution, the FBR is empowered to create rules under Section 237. The new tax law aims to enhance transparency and accountability in financial matters, encourage compliance, and combat the issue of black money in Pakistan.
Taxpayers are advised to fully understand the provisions outlined in Section 111 of the Income Tax Ordinance, 2001, and comply with the requirements to avoid potential penalties and legal consequences. It is crucial for taxpayers to stay informed and seek professional advice from qualified legal experts or tax professionals to navigate the updated tax law accurately and efficiently.