Why You Must Become a Filer in Pakistan to Avoid Hidden Tax Costs

Why You Must Become A Filer In Pakistan

In Pakistan, the thought of paying taxes often brings to mind visible costs—like income tax on your salary or business earnings. However, there are several hidden tax costs that many people are unaware of, and these can be avoided simply by becoming a filer. Whether you are a salaried employee, a business owner, or even a freelancer, not filing taxes can result in unseen costs that can impact your finances in a significant way.

This article will explore Why You Must Become A Filer In Pakistan and why it’s essential to become a filer to avoid these additional financial burdens.

What Is a Filer and Why Does It Matter?

In Pakistan, a filer is someone who:

• Submits an annual tax return to the Institute of Taxation (FBR).

• Is listed on the Active Taxpayer List (ATL).

• Has a National Tax Number (NTN).

Being a filer is more than just a legal requirement—it provides access to lower tax rates, financial benefits, and greater control over your financial affairs. However, non-filers often face hidden tax costs that can add up over time. Let's explore these costs and why filing is essential.

Hidden Tax Costs Non-Filers Face

1. Higher Withholding Taxes on Financial Transactions

One of the most significant hidden tax costs for non-filers in Pakistan is the higher withholding tax rates imposed on various routine financial transactions. These taxes are automatically deducted, often without the person being aware of the full extent of the cost. Common transactions that attract higher withholding taxes for non-filers include:

• Bank withdrawals: Non-filers face higher taxes on even basic banking activities like withdrawing cash or receiving payments.

• Property transfers: If you buy or sell property, non-filers are charged higher tax rates on transactions, leading to additional costs.

• Utility payments: Non-filers are subject to higher taxes on their utility bill payments.

• Vehicle purchases: Non-filers are also hit with increased taxes when purchasing vehicles.

As a filer, you are eligible for lower tax rates on all of these transactions, which can help you save money.

2. Ineligibility for Tax Refunds

If you have taxes deducted at the source—such as from salary payments or business transactions—you may have overpaid taxes. However, as a non-filer, you are ineligible to claim any refunds on these excess tax payments. This means you lose money that could have been returned to you.

By becoming a filer, you can claim a refund for overpaid taxes, ensuring you don’t leave money on the table. Whether you're employed or self-employed, filing your return ensures you can retrieve excess taxes that have been automatically deducted.

3. Exclusion from Government Subsidies and Schemes

In Pakistan, several government schemes, subsidies, and financial programs are available only to filers. These programs are designed to assist individuals and businesses with things like:

• Government-backed loans for small businesses and entrepreneurs

• Subsidized housing loans and education grants

• Special tax exemptions for filers in certain industries

If you are not a filer, you will be excluded from these financial opportunities, which could save you significant amounts of money in the form of reduced loan rates, financial support, and government benefits.

4. Higher Loan Interest Rates

Non-filers face another hidden cost when they need to take out a loan or mortgage. Banks and financial institutions require proof of tax filing before offering loans, credit cards, or mortgages. Non-filers will:

• Struggle to access financial products at all, or

• Pay higher interest rates and fees on loans.

Filing your taxes and being listed on the Active Taxpayer List (ATL) gives you better access to affordable loans, lower interest rates, and more favorable terms for mortgages, personal loans, and business financing.

5. Increased Risk of Tax Audits and Legal Action

Another hidden cost for non-filers is the higher likelihood of being audited by the Institute of Taxation (FBR). Non-filers are considered a higher risk for tax evasion, which means they may be subject to:

• Tax audits that can uncover hidden liabilities

• Legal action for failure to file taxes on time

• Fines for non-compliance

Tax audits and legal proceedings can result in unforeseen costs such as hefty fines, penalties, or even asset seizures. On the other hand, filers are less likely to be subjected to unnecessary scrutiny, making them less vulnerable to these hidden financial risks.

6. Loss of Business Opportunities

For business owners, not being a filer can lead to significant hidden costs in the form of lost business opportunities. When you’re not a filer:

• Suppliers, partners, and investors may hesitate to work with your business due to concerns about your financial responsibility and tax compliance.

• Government contracts and tenders may be off-limits to your business, as many government programs and initiatives require participants to be filers.

• Foreign investment may be harder to secure, as foreign investors typically prefer dealing with businesses that are legally compliant and transparent in their financial dealings.

Being a filer helps your business gain credibility, expand its opportunities, and attract better partnerships and investment.

How to Become a Filer in Pakistan

Becoming a filer in Pakistan is simpler than it seems, even for individuals with zero income. Here’s how you can get started:

1. Register for a National Tax Number (NTN) through the Institute of Taxation (FBR).

2. Submit your tax return through the FBR’s IRIS portal—this can be done online from anywhere.

3. If you have no taxable income, file a zero return, which still allows you to be recognized as a filer and included on the Active Taxpayer List (ATL).

Once you are listed on the ATL, you’ll be eligible for the benefits and lower tax rates that come with being a filer.

Conclusion: Filing Prevents Hidden Tax Costs

Filing your taxes in Pakistan is not just about fulfilling a legal requirement—it’s about avoiding hidden tax costs that can erode your savings and limit your financial potential. From higher withholding taxes to the inability to access government subsidies and loans, the consequences of not filing are far-reaching.

Becoming a filer can save you money by:

• Reducing your tax burden on everyday transactions

• Ensuring eligibility for tax refunds

• Giving you access to lower loan rates, government schemes, and business opportunities

By filing your taxes and ensuring you are listed on the Active Taxpayer List (ATL), you can protect yourself from these hidden costs and position yourself for greater financial success.