Filer and Non-Filer in Pakistan | Advantages For Filers

Exploring the Distinction Between Filers and Non-Filers in Pakistan

In Pakistan, the terms “filer” and “non-filer” have a profound impact on individuals and businesses alike. These classifications, established by the Federal Board of Revenue (FBR), determine tax responsibilities and access to various economic privileges. This article delves into the distinctions between filers and non-filers, highlighting the substantial benefits of being a filer and the consequences of remaining a non-filer.

Who is a Filer in Pakistan?

A filer is an individual or entity listed in the FBR’s Active Taxpayer List (ATL) due to the timely filing of income tax returns. Filing tax returns signals compliance with the country’s tax laws and provides filers with multiple financial advantages and legal protections. In addition to fostering good citizenship, being a filer enhances one’s financial profile and facilitates smoother transactions across various sectors.

Benefits of Being a Filer

Becoming a filer in Pakistan is synonymous with unlocking financial benefits and reducing tax liabilities. Below are some of the key advantages of achieving and maintaining filer status:

1. Reduced Tax on Property Purchases

Filers pay a mere 1% tax on the purchase of immovable property, such as houses, flats, or plots. Non-filers, on the other hand, are burdened with a 2% tax, effectively doubling the financial impact on real estate investments.

2. Lower Tax on Prize Winnings

Individuals listed on the ATL pay 15% tax on prize bond winnings, while non-filers face a 30% tax, which significantly reduces their net earnings from such windfalls.

3. Tax Relief on Bank Profits

Filers enjoy a reduced tax rate of 15% on profits or yields earned from bank savings and profit-bearing accounts. Conversely, non-filers endure a 30% tax on the same income, resulting in diminished financial returns.

4. Vehicle Registration and Token Tax Discounts

Filers benefit from a 50% concession on vehicle registration and annual token taxes compared to the amounts payable by non-filers. This incentive makes vehicle ownership considerably more affordable for compliant taxpayers.

5. Lower Taxes on Commercial Imports

Filers importing raw materials or other commercial goods pay a 6% tax at customs clearance, while non-filers are taxed at 12%. This disparity gives filers a competitive edge in business operations.

6. Reduced Tax on Dividend Income

Dividend income is taxed at 15% for filers, compared to a hefty 30% for non-filers. This relief encourages investments in the stock market and mutual funds among compliant taxpayers.

7. Savings on Auction Sales

Filers are subject to a 10% tax on auction sales, whereas non-filers pay double that amount (20%). This incentivizes filers to participate more actively in auction-based transactions.

8. Lower Taxes on Goods and Services

On the commercial supply of goods, filers pay a reduced tax rate of 4.5%, compared to 9% for non-filers.
For the provision or sale of services, filers face a 10% withholding tax, while non-filers are taxed at 20%.

9. Reduced Tax on Execution of Contracts

Filers benefit from a significantly lower tax rate of 7.5% on the execution of contracts, compared to 15% for non-filers. This offers considerable savings for businesses and individuals engaged in contractual work.

10. Tax Relief on Commissions

Commission income is taxed at 12% for filers, while non-filers pay 24%, resulting in substantial financial savings for compliant earners.

Who is a Non-Filer in Pakistan?

Non-filers are individuals or entities that do not file income tax returns and are absent from the FBR’s ATL. This non-compliance results in numerous financial and legal disadvantages, including higher tax rates and restricted access to economic opportunities.

Consequences of Being a Non-Filer

1. Higher Withholding Taxes

Non-filers are subject to significantly higher withholding tax rates on transactions such as property purchases, banking profits, and vehicle registrations.

2. Restricted Access to Financial Services

Non-filers often face challenges in securing loans, leasing vehicles, or obtaining mortgages, as financial institutions prioritize filers for such services.

3. Legal Penalties and Fines

Failure to comply with tax regulations can lead to fines, penalties, and legal action by the FBR, further compounding the financial burden on non-filers.

4. Limited Participation in Economic Opportunities

Non-filers are often ineligible for government tenders, contracts, and other public sector opportunities, limiting their economic potential.

Process of Becoming a Filer in Pakistan

The journey from being a non-filer to becoming a filer is straightforward and begins with registering with the FBR. Here are the steps to achieve filer status:

Obtain an NTN (National Tax Number): Register with the FBR through their online portal or a tax consultant to receive your NTN.
Submit Income Tax Returns: File your income tax returns annually, detailing your income, expenses, and applicable deductions.
Check the Active Taxpayers List (ATL): Ensure your name appears on the FBR’s ATL to confirm your filer status.
Maintain Compliance: Continue filing tax returns every year to retain your status as a filer and enjoy uninterrupted benefits.

Key Differences Between Filers and Non-Filers

Aspect	Filer	Non-Filer
Tax Compliance	Regularly files income tax returns	Does not file tax returns
Withholding Tax Rates	Lower rates	Higher rates
Access to Financial Services	Easy access to loans and mortgages	Restricted access
Participation in Tenders	Eligible	Often ineligible
Legal Standing	Compliant with tax laws	Non-compliant

Why Filing Taxes Matters

Becoming a filer in Pakistan is more than just a legal requirement; it is a gateway to financial empowerment. Filers not only contribute to the country’s economic stability but also enjoy substantial savings and benefits that enhance their financial well-being. In contrast, non-filers face numerous penalties, higher tax rates, and limited economic opportunities, which can hinder their financial growth.

The Role of the FBR in Promoting Filer Status

The Federal Board of Revenue has undertaken significant initiatives to encourage taxpayers to become filers. By streamlining the tax filing process, introducing user-friendly online portals, and launching awareness campaigns, the FBR aims to simplify tax compliance. Additionally, the publication of the ATL ensures transparency, allowing individuals and businesses to verify their filer status easily.

Conclusion

In Pakistan, the choice between being a filer or a non-filer has far-reaching financial and legal implications. While filers enjoy reduced tax rates, access to financial services, and a host of economic benefits, non-filers face penalties and restrictions that limit their growth potential. By becoming a filer, individuals and businesses can secure their financial future, contribute to national development, and avoid the pitfalls of non-compliance. Embracing filer status is not only a smart financial decision but also a step toward fostering a robust and transparent tax culture in Pakistan.