Government Approves Inclusion of Gilgit-Baltistan and AJK Taxpayers on Active Taxpayers List

In a significant move aimed at enhancing tax compliance and facilitating taxpayers in Gilgit-Baltistan (GB) and Azad Jammu and Kashmir (AJK), the Government of Pakistan has decided to allow these taxpayers’ names to appear on the Active Taxpayers List (ATL). This decision, announced by the Federal Board of Revenue (FBR), seeks to provide these individuals with access to lower withholding tax rates, thereby encouraging a culture of tax compliance in these regions.

Background

The ATL is a crucial component of the tax system in Pakistan, as it serves to distinguish between compliant taxpayers and those who fail to meet their tax obligations. Being on the ATL grants individuals and businesses benefits such as reduced withholding tax rates, which can significantly ease the financial burden of tax liabilities.

For many years, taxpayers in GB and AJK faced challenges in being recognized as active taxpayers due to the unique administrative structure and tax authority setup in these regions. The FBR’s recent decision addresses this gap by proposing amendments to the Income Tax Rules through SRO1448 of 2024.

Key Provisions of the Decision

Inclusion Criteria

Under the new rules, taxpayers who file returns with either the Gilgit-Baltistan Council Board of Revenue or the AJK Central Board of Revenue will be eligible for inclusion on the ATL. The amendments stipulate that:

1. Returns Submission: Taxpayers must have submitted their income tax returns for the most recent tax year to be listed on the ATL. This applies regardless of whether their temporary or permanent addresses fall within the jurisdiction of the filing authorities.
2. Timely Filing: Individuals and entities that file their returns by the due date or any extended deadline set by the commissioner or the FBR will automatically qualify for inclusion on the ATL.
3. New Entities: Companies or associations of persons that have been formed or incorporated after June 30 of the relevant tax year will also be included in the ATL, provided they are in compliance with the filing requirements.

Benefits of Inclusion

The move to allow the inclusion of taxpayers from GB and AJK on the ATL is expected to have several positive implications:

• Access to Lower Withholding Tax Rates: By appearing on the ATL, taxpayers can avail themselves of reduced withholding tax rates, which is beneficial for both individuals and businesses. This could result in lower overall tax liabilities and foster a more favorable business environment.
• Encouragement of Compliance: The decision is likely to encourage more taxpayers in these regions to comply with tax regulations. By simplifying the process and providing tangible benefits, the government hopes to increase the number of compliant taxpayers.
• Enhanced Tax Revenue: With more individuals opting to file their returns, the government stands to gain increased tax revenue, which can be utilized for public services and infrastructure development in GB and AJK.

Implications for the Regions

The inclusion of GB and AJK taxpayers on the ATL represents a progressive step toward integrating these regions into the national tax framework. For many residents, this change could mean a shift in perception regarding tax compliance. Historically, these regions have experienced lower tax compliance rates, partly due to the lack of awareness and the perceived complexity of the tax system.

With this new initiative, the government aims to bridge the gap and bring GB and AJK taxpayers into the fold of the national tax system. This could lead to better public services, as increased tax revenues can be directed toward health, education, and infrastructure projects that benefit local communities.

Challenges Ahead

While the decision is a positive step, several challenges remain in ensuring its effective implementation:

• Awareness and Education: There is a need for the FBR and local tax authorities to engage in extensive outreach and education programs to inform residents about the changes and the benefits of being included on the ATL. This is crucial to dispel any confusion and promote compliance.
• Administrative Capacity: The administrative capacity of tax authorities in GB and AJK will need to be bolstered to handle the expected increase in taxpayer registrations and queries. Adequate training and resources will be essential to facilitate a smooth transition.
• Monitoring and Enforcement: Ensuring that the rules are followed and that only compliant taxpayers are included on the ATL will require effective monitoring and enforcement mechanisms.

Conclusion

The government’s decision to allow taxpayers from Gilgit-Baltistan and Azad Jammu and Kashmir to appear on the Active Taxpayers List marks a significant milestone in the evolution of Pakistan’s tax system. By promoting inclusivity and compliance, this initiative has the potential to transform the economic landscape of these regions. As stakeholders work together to implement these changes, the long-term benefits for the residents of GB and AJK could be substantial, leading to a more robust and resilient local economy.