ISLAMABAD: Amid considerations for imposing a flood levy on dozens of luxury imported items with the consent of the International Monetary Fund (IMF), an official from the Federal Board of Revenue (FBR) has formally proposed utilising informal information to maximise tax revenues.
The Chief Commissioner of the Regional Tax Office (RTO), Islamabad, has suggested tapping into informal channels, noting that extended family members, such as cousins (referred to as Shareeka in local parlance), in-laws, neighbours, office colleagues, and club members, possess valuable information through familial, clan, and neighbourhood knowledge bases. Additionally, potential informants may include accountants (Munshi), record keepers, employees, domestic staff, drivers, and others who are well aware of their employers’ cash transactions and lifestyles. These low-paid employees could be incentivised to provide information to increase tax revenues through rewards with assured secrecy.
To generate additional revenue to provide relief to flood-affected areas, the Prime Minister’s Office has directed ministries to explore options for imposing a one-off levy on dozens of imported luxury items, including 1800cc vehicles, shampoo, chocolates, juices, cheese, pet foods, marble, and several others. This one-off flood levy is expected to generate Rs20-30 billion in revenue. However, its imposition is contingent on IMF approval.
Meanwhile, the FBR’s Regional Tax Office Chief Commissioner, Aisha Farooq, has written to the FBR’s Member IR Operations, says many individuals live in palatial houses, enjoy 24/7 air-conditioning, drive luxury cars, wear branded clothes, take multiple international trips, and purchase branded watches and jewellery, yet their income tax returns do not reflect their lifestyles. The declared income and taxes paid are not commensurate with their living standards.
Describing this to be an alarming situation, the chief commissioner says law’s universal self-assessment scheme allows taxpayers’ declarations to be accepted without scrutiny, relying on robust deterrent audits supported by third-party data and a deeply digitised economic structure. Unfortunately, much of Pakistan’s economy remains undocumented, with most income earned and expenses incurred in cash. Despite integrating various formal data sets with tax returns, this office believes that achieving true tax potential will remain elusive due to the prevalence of a cash-based economy. Innovative approaches to tapping informal information from neighbourhoods, family, and colleagues are necessary.
The current reward regime is not fully equipped to harness the immense potential of social whistleblowing, the Chief Commissioner observed. The maximum reward limit is currently Rs5million, which should be increased to Rs150 million on a graduated scale. Strict secrecy must be legally protected, with any breach treated as a violation of Section 216 of the Income Tax Ordinance, 2001. Furthermore, the process for claiming and paying rewards should be streamlined in line with international best practices. It is proposed that the FBR seize this opportunity for the tax year 2025, with returns due by September 30, 2025.