The Federal Board of Revenue (FBR) faces legal challenges over its attempt to impose penalties on a newly introduced category of “Late Filers,” a move deemed unconstitutional by tax experts.

This category was established through the Finance Act 2024, but its retrospective enforcement has sparked controversy.

Several taxpayers have approached the Lahore High Court (LHC) to contest the FBR’s actions.

According to tax experts, the petitioners argue that their status as active taxpayers on the Active Taxpayers List obligates them to pay an advance tax of 3 percent under section 236K of the Income Tax Ordinance, 2001, for the purchase of immovable property.

However, the FBR is allegedly demanding a 6 percent tax rate without legal justification.

The petitioners contend that this action contradicts applicable law and is therefore unsustainable. In response, the LHC has issued notices to the tax department, requesting a formal reply.

Discussions with tax experts and advisers reveal that the “Late Filers” category, introduced in the income tax law, is set to take effect from July 1, 2024. Consequently, enforcing this law retrospectively is considered illegal and will be challenged in courts.

The Finance Act 2024 introduced the concept of “Late Filers” as a third category of taxpayers. Individuals who file their tax returns after the due dates and subsequently become active taxpayers will be classified as late filers.

This classification subjects them to different tax rates on the purchase or disposal of immovable property, distinct from those applicable to active taxpayers.

Previously, taxpayers were categorized as either Filers or Non-filers. The introduction of the “Late Filer” category aims to encourage timely filing of tax returns by imposing higher tax rates for late submissions. However, the retrospective application of this measure has raised significant legal and constitutional concerns.