A comment on Finance Act 2025—III

Though the Finance Act, 2025 is applicable from July 1, 2025; however, these provisions would be applicable on the date as notified by the FBR.

Acquisition of certain assets, etc.

Concept

A person, other than a public company or a non-resident shall be eligible to undertake transactions specified in this section if:

A comment on Finance Act 2025—II

a. The person has filed a return of income and wealth statement; and

b. There are sufficient sources as per the wealth statement or the sources of investment and expenditure statement (newly introduced). Both the conditions are to be cumulatively present.

The sources of investment and expenditure are there for accumulation after the last return filed.

Illustration:

Mr A has Rs 50 million can as per the return of income for the tax year 2025. He acquires the property in July 2025 for Rs 120 million. The difference of Rs 54 million can be presented by way of sources of investment and expenditure statements. [130 percent of 54 is Rs 70].

Sufficient resources defined:

This is the amount equal to one hundred and thirty percent of the cash and equivalent assets comprising cash denominated in local or foreign currency, fair market value of gold, net realizable value of stocks, bonds, receivables or any other cash equivalent asset as may be prescribed, declared by a person either in his sources of investment and expenditure statement, or wealth statement filed for the latest tax year and in the case of a company or association of persons, cash and equivalent assets, declared in the financial Statements attached with the income tax return for the latest tax year:

Constitutional validity

A comment on Finance Act 2025—I

The fundamental right to undertake an economic transaction under the Constitution requires an examination to decide whether any restriction can be placed in a taxing statute.

The administrator of embargo

The obligation to stop the transaction has been placed on the person through which such transactions are undertaken such as registration authority, banks etc.

Transactions covered:

Purchase or import of vehicles:

Event: Booking, purchase or registration of a motor vehicle by any manufacturer of a motor vehicle or vehicle registering authority of Excise and Taxation Department;

Transaction and threshold: The invoice value for locally-manufactured vehicles or import value as assessed by the Customs Authority inclusive of all applicable taxes, duties, levies and charges;

Value exceeding seven million rupees.

Registration of property

Event: Registering, recording or attesting transfer of any immovable property such authority;

Transaction and threshold: Fair value shall be the value as the Board may, from time to time, by notification in the official Gazette, determine the area or areas as may be specified in the notification. This means that it would be FBR’s value, if not the market value.

Value exceeding one hundred million rupees.

Dealings in shares, etc.

Event and transaction: Opening and maintaining an account in respect of securities, units of mutual fund or similar investment for acquisition of securities or debt securities or unit of mutual funds or money market instruments in any financial year excluding reinvestment either by liquidation of similar type of securities and or reinvestment of returns earned on already held securities

Threshold: Rupees fifty million

Embargo on cash withdrawal

Concept

The law provides that a banking company shall not allow cash withdrawal from any of the bank accounts.

The law provides that this provision will trigger when there is an annual cash withdrawal limit above Rs one hundred million rupees in any (all) bank accounts.

This means that each transaction in a bank account is to be taken into consideration. When the total cash withdrawal from that bank account exceeds Rs 100 million then the bank would stop the withdrawal unless the account holder provides the sources of funds in that account.

Relevance

This is a very important change; however, the restriction has been placed only on bank accounts maintained by individuals. A lot of businesses who deal in cash operate as a firm (association of persons); therefore, the said provision is suggested to be extended to all persons other than a public company.

Certificate of exemption for capital gains

A new subsection has been included in Section 159 being the section relating to issue of exemption certificates with respect to collection of advance tax on the sale of residential immovable property. The conditions are that the residential property

(a) has been in the personal use for the last fifteen years;

(b) has been declared by the person in his wealth statement under section 116 for the last fifteen years; and

Provided that the exemption certificate under this section shall be issued once in fifteen years.

The conditions are unnecessary that such certificates be available on every valid case.

Exchange of banking and tax information related to high-risk persons

The Board has been empowered to share information obtained from the tax declarations with scheduled banks in Pakistan, in respect of persons or classes of persons, for the purpose of cross-matching with the bank data through the data-based algorithms, as may be prescribed; and

The banks have been required to provide to the Board the final results where the banking data is at variance with the algorithm.

The concept of cross matching through data-based algorithms is not correct. There cannot be any action if the variance is explained even if the same is not in line with that algorithm.

This is a reverse cycle. In this provision the declared position is the basis. In the correct situation it should be otherwise and information be obtained from the bank on the basis of bank accounts declared and then comparing the same with the declared position.

All information received under these provisions shall be used only for tax and related purposes and kept confidential.

(To be continued)