Islamabad is continuing its crusade against tax evaders as a new bill was proposed to enforce tax compliance. Dawn News reported that tax authorities will be given sweeping powers to ensure that all tax laws are being followed.
The new bill will grant authorities the right to shut down non-complying businesses on the spot and seize assets at their own discretion. Moreover, non-filers will no longer be able to partake in a plethora of economic activities such as real estate transactions, trading securities, or even purchasing automobiles.
If enforced properly, the Federal Board of Revenue (FBR) could report a substantial surge in tax collection levels. This is because, in FY 2023-24, tax evaders were able to withhold a staggering $13.8 billion, which the FBR has set its eyes on now.
While the ‘war’ on evaders will boost tax collections and be lauded as a political victory for Islamabad, genuine business activities could get caught in the crossfire. For instance, the volume of sales in the automobile sector is expected to decline now as tax evaders will not be able to purchase cars more than 800cc.
Automobile giants such as Honda Atlas Cars and Toyota Indus both manufacture cars solely above 800cc and are expected to see a decline in sales volume and, ultimately, market share if the proposed bill is passed. Experts are speculating a possible drop in the value of both Honda and Toyota (traded on the stock exchange under the name ‘Indus Motor Company’). However, local car dealerships specialising in the sale of imported 660cc cars may benefit as they might witness a greater number of customers.
The real estate market is another agent in the economy that will suffer tremendously due to the crackdown on non-filer realty transactions. It is an open secret that the real estate market practically runs on black money, and as per Imlaak, the true amount could be in the trillions of rupees.
Tax evaders have exploited the gap between FBR and market valuations of land by paying the FBR value to the seller via official channels and paying the rest of the market value to the seller under the table. This land is then sold later officially at market value which allows them to launder their money.
The bill, however, proposes that non-filers shall not be able to buy property at all, resulting in a slowdown of the real estate market. This will likely hurt those individuals who have invested their life savings into real estate, as reduced demand for land will result in a fall in property prices.
Another cause for concern for businesses is the unchecked power that tax officials will obtain. The bill will allow tax officials to usurp business assets as they see fit if the business is evading taxes. Business owners are uneasy about these developments and are considering hiring auditors to ensure they are indeed complying with tax laws, which obviously comes at a cost to the business.
With the majority of economic agents viewing the bill in a negative light, it will be interesting to see if Islamabad will soften its stance against tax evaders. Only time will tell.