The government is considering the removal of National Database and Registration Authority (NADRA)’s authority to determine the income and tax liability of unregistered individuals and non-filers in order to expand the tax base.
Officials from the Ministry of Finance, at the senior level, are currently discussing the inclusion of this budget proposal in the Finance Bill 2023.
The previous attempts to broaden the tax net through NADRA did not yield the desired results.
In addition, There is a strong inclination among the budget planners to eliminate all powers granted to the Authority under section 175B of the Income Tax Ordinance, which empowers NADRA to assess and recover income tax from non-filers.
Under this section, NADRA possesses extensive powers to take various actions against individuals who fail to file income tax returns.
The Federal Board of Revenue (FBR) will be responsible for proposing the removal of section 175B through the Finance Bill 2023.
Once the Income Tax Ordinance withdraws section 175B, the FBR may introduce a new provision (section 175C) to establish a Realtime National Integrated database, with potential oversight by the State Bank of Pakistan (SBP) or FBR.
Moreover, this database would analyze all data, including banking transactions, using AI based on tax declarations. Non-compliant taxpayers would be encouraged to revise their returns through nudges.
If they fail to revise or provide accurate income information, the relevant information would be made available to the FBR for further action, as proposed.
Section 175B mandates NADRA to share its records and available information with the Board in order to expand the tax base and fulfill the objectives of the Ordinance.
NADRA has the authority to:
- Propose and provide information to the Board to broaden the tax base.
- NADRA authority to actively identify any person, whether a taxpayer or not, based on income, receipts, assets, liabilities, expenditures, or transactions that evade assessment, under-assessed, receive excessive relief or refund, misdeclared or misclassified under a specific income category, or display other pertinent characteristics.
- Determine the value of any item mentioned in the above point if it deviates from the notified value by the Board or the district authorities, or if no such value has been notified, the true or market value.
- Establish a memorandum of understanding with the Board for secure exchange and utilization of individuals’ information.
Therefore, NADRA can compute indicative income and tax liability using artificial intelligence, mathematical, or any other modern calculation method.
The Board can utilize the information provided by NADRA and share it with the relevant income tax authority for the purposes of the Ordinance.
The Board will notify the person concerned about the determined indicative income and tax liability, and the person will have the option to pay the determined amount under prescribed terms, conditions, installments, discounts, penalties, default surcharges, and time limits set by the Board.
It’s important to note that the withdrawal of these powers will not prevent the FBR from utilizing the available data from NADRA, according to sources.
Published in the Logical Baat, May 26, 2023.