How to Become a Tax Filer with the Federal Board of Revenue (FBR) in Pakistan

As a responsible Pakistani citizen, it is our duty to comply with the country’s tax laws, particularly if you have a business or earn a taxable income. Becoming a tax filer not only contributes to the development of Pakistan but also offers numerous benefits, such as lower withholding tax rates, eligibility for tax exemptions and deductions, and improved credit ratings.

In this blog post guide, we will walk you through the step-by-step process of becoming a tax filer with the Federal Board of Revenue (FBR) in Pakistan.

Understanding Tax Filers in Pakistan

A tax filer is an individual or entity responsible for submitting a tax return to the government, reporting their income and any taxes owed for a given tax year.

In Pakistan, tax filers include individuals, businesses, trusts, estates, and other entities liable to pay taxes.The tax return provides information on the tax filer’s income and any taxes owed, which the FBR uses to calculate the tax liability and enforce compliance with tax laws and regulations.

Eligibility Criteria for Tax Filers

Before becoming a tax filer, it is essential to determine your eligibility. In Pakistan, the following individuals and entities must file tax returns:

• Individuals earning a taxable income, such as through salary, business, or property
• Self-employed professionals, such as doctors, lawyers, or consultants
• Owners of businesses, regardless of size
• Registered businesses, including partnerships and companies

If you are unsure about your eligibility, it is recommended to consult a tax professional or refer to the information provided on the official FBR website.

Step-by-Step Guide to Becoming a Tax Filer

1. Register with the FBR
   • For individuals, obtain a National Tax Number (NTN) by visiting the nearest Regional Tax Office (RTO) and completing the NTN application form. Submit the required documents, including your Computerized National Identity Card (CNIC), proof of residence, bank statement, and an employer certificate if employed.
   • For businesses, register your company with the Securities and Exchange Commission of Pakistan (SECP) and obtain a company NTN.
   • Alternatively, you can register online through the FBR’s Iris portal by clicking on “Registration for Unregistered Person” and entering the necessary information.
2. File Your Income Tax Returns
   • Log in to the Iris portal using your credentials.
   • Select the relevant income tax return form for the current tax year.
   • Enter the necessary information regarding your income, expenses, and any deductions.
   • Attach required documents such as salary certificates, bank statements, and proof of deductions.
   • Review all information for accuracy and submit the return electronically through the Iris portal.
3. Verification and Acknowledgment
   • The FBR will process your return following submission.
   • You will receive an acknowledgment receipt confirming your status as a filer.
4. Regular Compliance
   • Ensure you file your tax returns annually before the due date to maintain your filer status.
   • Keep all financial records and documents organized for accurate filing and potential audits.

Benefits of Being a Tax Filer

1. Lower Withholding Tax Rates
   Tax filers enjoy lower withholding tax rates on various transactions, including banking, property, and vehicles.
2. Eligibility for Tax Exemptions and Deductions
   As a tax filer, you become eligible for numerous tax exemptions and deductions, allowing you to reduce your tax liability.
3. Improved Credit Rating and Loan Eligibility
   Being a tax filer can improve your credit rating and make you more eligible for loans from financial institutions.
4. Compliance with Legal Requirements
   By becoming a tax filer, you demonstrate your commitment to complying with the law and contributing to the development of Pakistan.

Frequently Asked Questions (FAQs)

1. What is the due date for filing income tax returns in Pakistan?
   The due date for filing income tax returns is usually September 30th for individuals and December 31st for businesses, depending on their financial year.
2. Can I file my tax returns manually?
   While manual filing is possible, it is highly recommended to file your returns electronically through the FBR’s Iris portal for convenience and faster processing.
3. What happens if I don’t file my tax returns on time?
   Failure to file tax returns on time may result in penalties and legal complications. It is crucial to comply with the deadlines set by the FBR.
4. Do I need to hire a tax consultant or accountant to file my returns?
   While hiring a professional can be beneficial, especially if you have complex financial situations, it is not mandatory. You can file your returns yourself by following the guidelines provided by the FBR.

Becoming a tax filer in Pakistan is a straightforward process that offers numerous benefits and contributes to the country’s development. By following the steps outlined in this guide and regularly complying with tax laws, you can ensure that you fulfill your civic duty while enjoying the advantages of being a tax filer.Remember, being a responsible Pakistani citizen means playing your part in nation-building by becoming a tax filer with the Federal Board of Revenue.

Table: Comparison of Tax Filer vs. Non-Filer

By understanding the advantages of being a tax filer and the consequences of non-compliance, individuals and businesses in Pakistan can make informed decisions and fulfill their tax obligations.

What are the penalties for not filing taxes in Pakistan?

In Pakistan, failing to file taxes can lead to severe penalties and legal consequences. The Federal Board of Revenue (FBR) has established a framework of penalties to encourage compliance and ensure that all taxpayers fulfill their obligations. Below is a detailed overview of the penalties for not filing taxes in Pakistan.

Penalties for Not Filing Taxes in Pakistan

1. Late Filing Penalty

If you fail to file your income tax return by the due date, you will incur a late filing penalty. The specifics include:

• Daily Penalty: A penalty of PKR 2,500 is imposed for each day that the tax return is filed late.
• Maximum Penalty: The maximum penalty for late filing is capped at PKR 50,000.

This means that if you delay filing your return significantly, the penalties can accumulate quickly, leading to substantial financial burdens.

2. Failure to File Penalty

If you do not file your tax return at all, the FBR imposes a fixed penalty:

• Flat Penalty: A penalty of PKR 50,000 is imposed for failing to file a tax return.

This penalty serves as a deterrent against non-compliance and emphasizes the importance of timely tax filing.

3. Percentage Penalty on Tax Payable

For individuals who fail to file their returns, the FBR can impose additional penalties based on the taxable income:

• Weekly Penalty: A penalty equal to 0.1% of the tax payable per week is charged.
• Minimum Penalty: If this calculated penalty is less than PKR 40,000 or if no tax is payable for that year, a minimum penalty of PKR 40,000 will apply.

4. Penalties for Non-Disclosure and Underpayment

Taxpayers may also face penalties related to underreporting income or failing to disclose certain information:

• Underpayment Penalty: A penalty of 10% is imposed on any amount of tax that is underpaid.
• Non-Disclosure Penalty: A penalty of 20% applies to any undisclosed income on a tax return.

5. Legal Consequences

In addition to financial penalties, non-filers may face legal repercussions:

• Imprisonment: In severe cases of tax evasion or fraud, individuals may face imprisonment for up to three years.
• Seizure of Assets: The FBR has the authority to seize assets such as bank accounts and properties if taxes remain unpaid.

6. Impact on Business Operations

For businesses, failing to comply with tax regulations can have significant operational impacts:

• Business License Issues: Non-filers may find it challenging to obtain or renew business licenses.
• Loan Acquisition Difficulties: Financial institutions often view non-filers as high-risk borrowers, making it difficult to secure loans or credit.

7. Additional Consequences for Specific Cases

Certain conditions can lead to heightened penalties:

• Individuals who own vehicles with an engine capacity above 1,000 CC or properties exceeding 500 square yards are required to file returns and may face stricter penalties if they fail to do so.
• For salaried individuals earning above PKR 600,000 annually or having other income exceeding PKR 400,000, the minimum penalty for non-filing can escalate significantly.

The penalties for not filing taxes in Pakistan are designed to enforce compliance and ensure that all taxpayers meet their obligations. With daily penalties accumulating quickly and significant fixed fines imposed for failure to file, it is crucial for individuals and businesses alike to adhere strictly to tax regulations.

To avoid these penalties and potential legal consequences, it is advisable to file your tax returns on time, disclose all sources of income accurately, and seek professional assistance if necessary. By doing so, you not only comply with the law but also contribute positively to the nation’s economy.

Can I face imprisonment for not filing taxes in Pakistan?

Yes, you can face imprisonment for not filing taxes in Pakistan. The Income Tax Ordinance (ITO) prescribes criminal penalties, including imprisonment, for tax evasion and non-compliance with tax laws.

Imprisonment for Tax Evasion

Under the ITO, a person who commits tax evasion can face imprisonment of up to three years upon conviction by a court. Tax evasion includes:

• Deliberately underreporting income
• Concealing income or assets
• Making false statements on tax returns
• Failing to file tax returns

The severity of the imprisonment depends on the amount of tax evaded:

• If the tax evaded is less than Rs 1 billion, imprisonment may extend up to 5 years.
• If the tax evaded is Rs 1 billion or more, imprisonment may extend up to 10 years.

Imprisonment for Non-Compliance

The ITO also prescribes imprisonment for other tax offenses, such as:

• Failure to maintain records as required under the law: Imprisonment up to 2 years
• Making false or misleading statements to tax authorities: Imprisonment up to 2 years
• Non-compliance with notices under section 116A (foreign assets): Imprisonment up to 1 year

Factors Determining Imprisonment

The courts consider several factors when determining if imprisonment is warranted, such as:

• Whether the non-compliance was deliberate or due to negligence
• The amount of tax evaded or sought to be evaded
• The taxpayer’s history of compliance
• Cooperation with tax authorities during investigation

Avoiding Imprisonment

To avoid imprisonment, it is crucial for taxpayers to:

• File tax returns accurately and on time
• Disclose all taxable income and assets
• Maintain proper records as required by law
• Respond promptly to notices and requests from tax authorities
• Seek professional advice in case of any confusion or disputes

In conclusion, while imprisonment is a serious consequence, it is reserved for cases of willful tax evasion and non-compliance. By fulfilling tax obligations diligently, taxpayers can avoid such penalties and contribute to the nation’s development.