The Federal Board of Revenue (FBR) has informed the World Bank (WB) that the names of non-filers of income tax returns for 2009 would be removed from the Active Taxpayer List (ATL), which would impose restrictions on business transactions being carried out by non-compliant taxpayers.

Sources told Business Recorder here on Wednesday that the FBR has submitted a plan to the WB about gradual imposition of restrictions on the inactive taxpayers, who are either non-filers of income tax returns or sales tax returns or withholding tax statements.

The restrictions on the non-compliant taxpayers would be systemically tightened to exclude non-compliant taxpayers from the ATL. In some cases, the FBR will exercise the authority to withhold refunds of those persons, whose names have been excluded from the Active Taxpayer List (ATL) to impose restrictions on the non-compliant taxpayers.

According to WB review mission report on ATL, the ATL implemented by FBR is a successful initiative. The restrictions to the use of sales tax adjustment from sales taxpayers who are not in the ATL are in place. These taxpayers' imports are not allowed to enjoy facilitation services on customs side. The government agencies and even private companies are requiring that their suppliers fall within the category of the ATL.

The FBR has recently extended the ATL to the income taxpayers through the Finance Act 2010. Some restrictions may now be applied to IT taxpayers who are not in the ATL. However, expense deductions resulting from purchases from taxpayers who are not in ATL cannot be disallowed according to the Income Tax Act.

To expand the system, in the short term, FBR would remove from the ATL the income taxpayers who did not file the 2009 income tax return. In case of both income tax and sales taxpayers, the FBR will apply the restrictions already in place for sales taxpayers. For the remaining taxpayers, the FBR will not pay their refunds, would not allow them to sell to government agencies and not provide them tax certificates until they have resolved the problem that removed them from the ATL.

For the Financial Act 2011, the FBR could consider changing the Income Tax Act to disallow deductions resulting from purchases of income taxpayers who are not in the ATL. Moreover, the FBR should review the restrictions applied to sales tax and income taxpayers who are not in the ATL, with a view to gradually making them stricter.

The WB has recommended the FBR to exclude from the active taxpayer list those taxpayers who should have filed an income tax return in 2009 but have did not file one. The FBR should start applying restrictions to income tax payers who are not in the ATL. The FBR should consider proposing a change to the Income Tax Act to disallow expense deductions from purchases from non ATL, income taxpayers.