The Tax Laws (Amendment) Bill, 2024 is expected to face legal challenges, primarily due to its restrictions on economic transactions for non-filers, which many believe infringes on citizens’ fundamental rights.
Dr. Muhammad Iqbal, a former member of the Inland Revenue policy team, expressed concerns to Business Recorder, stating that the bill grants the tax department excessive power to enforce tax regulations. While these measures may lead to an increase in individuals filing returns, they are unlikely to effectively address the looming revenue shortfall.
Another tax specialist, who chairs the Reforms and Resource Mobilization Committee, raised serious constitutional questions regarding the bill. He pointed out that the government cannot restrict specific transactions to penalize those who do not file taxes, and he anticipates that the bill will be challenged in court. The proposed law includes severe penalties, such as sealing businesses, freezing bank accounts, and seizing assets, all of which could be contested on grounds of violating fundamental constitutional rights, according to Dr. Iqbal.
The bill introduces restrictions on transactions for non-filers, such as purchasing vehicles, buying or selling real estate, and conducting securities transactions, which Dr. Iqbal fears could further depress economic activity. Additionally, the limitation on opening new bank accounts for non-filers may inadvertently boost the illegal cash economy.
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Concerns have also been raised regarding the potential misuse of provisions that allow family members of filers to carry out transactions, essentially enabling filers to acquire property or vehicles under the names of relatives based on their declared assets.
With the bill empowering the Federal Board of Revenue (FBR) to deny registration or access to legal documents for property purchases and other transactions based on specified value thresholds, experts warn that this could violate constitutional articles related to freedom of trade and property rights.
A review by Tola Associates noted that demanding disclosure of investment and expenditure sources contradicts the self-assessment principles under the Income Tax Ordinance, making it arguable that the bill may be deemed unconstitutional by the courts.
Furthermore, Section 175AA of the bill could infringe upon taxpayers’ privacy rights, as it permits the FBR to obtain bank details based on even minor discrepancies. Critics describe this as arbitrary.
The new Section 14AE of the Sales Tax Act empowers authorities to seal business premises and seize assets, despite the existing power to register anyone who fails to voluntarily register for sales tax.
Dr. Iqbal noted that hiring private sector experts and auditors signals a lack of confidence in the FBR’s capabilities. Instead of addressing internal weaknesses, outsourcing these tasks could further diminish their capacity, pointing to previous failures in income tax audit outsourcing.
