FBR Guidelines for Section 116(3) of the Income Tax Ordinance

The Federal Board of Revenue (FBR) has implemented several guidelines and amendments to Section 116(3) of the Income Tax Ordinance, enhancing transparency and compliance related to the filing of foreign income and assets statements. Below, we outline the key points of these guidelines to help taxpayers understand their obligations and the procedures involved.

Introduction of Section 116A

To provide clarity and detailed requirements for filing foreign income and assets statements, the FBR introduced Section 116A after Section 116. This new section aims to ensure that resident individuals report their foreign income and assets accurately.

Filing Requirements

Under Section 116A, the filing requirements are as follows:

• Who Must File: Every resident individual with foreign income of USD 10,000 or more, or foreign assets valued at USD 100,000 or more, must file a foreign income and assets statement.
• When to File: This statement must be filed along with the annual income tax return and verified in the prescribed manner.

Contents of the Statement

The foreign income and assets statement should include:

• Foreign Assets and Liabilities: Total foreign assets and liabilities as of the last day of the tax year.
• Transfers: Details of any foreign assets transferred to another person during the tax year, including the consideration for the transfer.
• Income and Expenditure: Complete particulars of foreign income and expenditure derived during the tax year, including expenses incurred for deriving said income.

Commissioner’s Authority

The Commissioner has the authority to enforce compliance:

• Issuing Notices: The Commissioner can issue a written notice to any individual who is deemed required to file a foreign income and assets statement but has failed to do so. This notice will specify the date by which the statement must be furnished.

Penalties for Non-Compliance

To emphasize the importance of compliance, the FBR has set forth penalties:

• Penalty Details: Failure to furnish a foreign income and assets statement by the due date will result in a penalty of 2% of the foreign income or the value of the foreign assets for each year of default.
• Incorporation into Law: This penalty has been added to the Table in Section 185 of the Income Tax Ordinance.

Amendments to Related Sections

To integrate the new requirements seamlessly:

• Section 118: Amended to include references to the foreign income and assets statement under Section 116A.
• Overall Tax Return Filing: The requirement to file this statement has been integrated into the overall tax return filing process.

Effective Date

The guidelines and amendments to Section 116(3) took effect on July 1, 2020. From this date, compliance with Section 116(3) requires intimation to the Commissioner in the prescribed form and manner.

Automation Initiatives

In line with FBR’s commitment to enhancing taxpayer experience:

• Automation: Efforts are being made to facilitate taxpayers through automation initiatives, such as the potential for automated computation of tax liabilities via the Iris system.

Looking Ahead

The FBR’s guidelines for Section 116(3) of the Income Tax Ordinance underscore the importance of transparency in reporting foreign income and assets. The introduction of Section 116A, along with specified penalties for non-compliance, highlights the FBR’s commitment to ensuring that all resident individuals meet their reporting obligations. By understanding these guidelines and taking necessary steps to comply, taxpayers can avoid penalties and contribute to a more transparent tax system.

For more detailed assistance and professional guidance on complying with these requirements, contact ABH Tax Consultants. Our expert team is dedicated to helping you navigate the complexities of tax compliance efficiently and effectively.