Finance Act 2025: A Detailed Overview – Part II

While the Finance Act, 2025 is scheduled to take effect on July 1, 2025, the specific provisions discussed herein will be implemented on a date to be formally announced by the Federal Board of Revenue (FBR).

Acquisition of Specific Assets
Core Concept

An individual, excluding public companies or non-residents, is permitted to engage in transactions as outlined in this section, provided they meet the following criteria:

  • The person has duly submitted their income tax return and wealth statement.
  • The wealth statement or the newly introduced sources of investment and expenditure statement demonstrates sufficient resources. Both stipulations must be satisfied concurrently.

The funds for investment and expenses should represent accumulations post the filing of the most recent tax return.

Example:

Mr. A declares assets of Rs 50 million in his tax return for the year 2025. In July 2025, he acquires a property for Rs 120 million. He can account for the Rs 54 million difference through the sources of investment and expenditure statements [130% of Rs 54 million equals Rs 70 million].

Definition of Sufficient Resources:

Sufficient resources are defined as an amount equivalent to one hundred and thirty percent of liquid assets. These assets include cash in local or foreign currency, the fair market value of gold, the net realizable value of stocks, bonds, receivables, or any other prescribed liquid asset. These must be declared in either the sources of investment and expenditure statement or the wealth statement for the latest tax year. For companies or associations, this refers to liquid assets declared in the financial statements accompanying the income tax return for the latest tax year.

Constitutional Validity

The constitutional right to engage in financial transactions necessitates a review to determine whether any restrictions can be imposed through tax legislation.

Transaction Enforcement

The responsibility to halt transactions rests with the entities facilitating them, such as registration authorities and banks.

Covered Transactions:
Vehicle Purchase or Import:
  • Event: Booking, purchase, or registration of a vehicle through a manufacturer or the Excise and Taxation Department.
  • Transaction: The invoice value for domestically produced vehicles or the import value assessed by Customs, including all relevant taxes, duties, levies, and charges.
  • Threshold: Values exceeding seven million rupees.
Property Registration:
  • Event: Registering, recording, or attesting the transfer of immovable property by the relevant authority.
  • Transaction: Fair value as determined by the FBR through official Gazette notifications for specified areas. This implies the value will be based on FBR rates if they differ from market values.
  • Threshold: Values exceeding one hundred million rupees.
Shares and Securities Dealings:
  • Event and Transaction: Opening and maintaining an account for securities, mutual fund units, or similar investments for acquiring securities, debt instruments, mutual fund units, or money market instruments within a financial year. Reinvestments via liquidation of similar securities or reinvestment of returns from existing holdings are excluded.
  • Threshold: Fifty million rupees.
Restrictions on Cash Withdrawals
Overview

Regulations stipulate that banking institutions must restrict cash withdrawals from bank accounts.

This restriction is triggered when annual cash withdrawals surpass Rs one hundred million across all bank accounts held by an individual.

Each transaction is taken into account, and once total withdrawals from an account exceed Rs 100 million, the bank will suspend further withdrawals until the account holder provides documentation verifying the source of funds.

Significance

While this is a notable change, it currently applies only to individual bank accounts. Many cash-based businesses operate as firms (associations of persons). Therefore, extending this provision to all entities other than public companies is advisable.

Capital Gains Exemption Certificate

A new subsection has been added to Section 159, concerning the issuance of exemption certificates for advance tax collection on the sale of residential property. The conditions for eligibility are:

  1. The property has been used as a personal residence for the past fifteen years.
  2. The property has been declared in the individual’s wealth statement under Section 116 for the same period.
  3. The property is listed as a residence for personal use in the individual’s tax records.

An exemption certificate under this section can only be issued once every fifteen years.

These prerequisites are deemed unnecessarily restrictive, as valid cases should always be eligible for such certificates.

Exchange of Banking and Tax Data for High-Risk Individuals

The FBR is authorized to share information obtained from tax declarations with scheduled banks in Pakistan regarding specific individuals or groups. This data will be cross-referenced with bank data using prescribed algorithms.

Banks are mandated to report final results to the FBR when banking data deviates from the algorithm’s expectations.

The utilization of algorithms for cross-matching is debatable. No punitive action should occur if discrepancies are adequately explained, even if they contradict the algorithm’s findings.

This process operates in reverse; the declared position serves as the foundation. Ideally, banking data should be gathered based on declared bank accounts and subsequently compared against the declared financial positions.

All data acquired under these regulations will be strictly confidential and used solely for taxation and related purposes.

(To be continued)