Tax Expert Proposes Tax Base Broadening Measures

Lahore: Tax specialist Ashfaq Yousuf Tola has advocated for the implementation of a Minimum Asset Tax (MAT) through Capital Value Tax (CVT) and the updating of the “Resident Individual” definition for taxation purposes to broaden the tax base and ensure fairness within the system.

Minimum Asset Tax (MAT)

To ensure affluent individuals contribute equitably to the nation’s revenue, Tola suggested introducing MAT by broadening the scope of Capital Value Tax (CVT). He specified that MAT would be applicable to resident individuals whose assets within the country exceed PKR 100 million, with a tax rate of 1% on the fair market value of assets above this limit.

Tola clarified that MAT would be offset against an individual’s income tax liability, acting as a base threshold for direct taxation rather than imposing an additional tax.

Modernizing the Definition of Resident Individual

Regarding updating the definition of a “Resident Individual” for tax purposes, Tola stated that the current definition under Section 82 of the Income Tax Ordinance, 2001, which designates a resident as someone present in Pakistan for 183 days or more, is antiquated and inconsistent with more sophisticated residency regulations in other countries.

Tola proposed a revised framework, suggesting a more suitable residency definition would classify individuals as “residents” if they reside in Pakistan for 182 days or more during a fiscal year.

For individuals staying between 120 and 181 days, their residency status should hinge on both citizenship and income.

Specific Criteria for Residency
  • A Pakistani citizen (as defined by the Pakistan Citizenship Act, 1951) or a person holding a Pakistan Origin Card (POC) who earns income above a specified threshold (excluding foreign-sourced income)
  • Has no tax obligations in another country, should be regarded as a Resident but Not Ordinarily Resident (RNOR).

He emphasized that those not meeting these criteria should be deemed non-residents.

Additionally, individuals spending fewer than 120 days in Pakistan during the fiscal year should be classified as Non-Residents, regardless of their income or nationality.