Expanding Tax Net or Weaponizing Compliance?

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Editorial

The government’s proposed amendments in the Finance Bill 2025-26 mark a dramatic escalation in Pakistan’s efforts to curb tax evasion, particularly in the sales tax regime. By empowering Inland Revenue officers with sweeping powers—ranging from freezing bank accounts to making arrests—the state is reorienting tax enforcement through coercion rather than consensus.

At the heart of the bill is the radical provision allowing commissioners to freeze the bank accounts of unregistered individuals, overriding other financial laws. This effectively deputizes banks into the role of tax enforcers, disrupting financial autonomy and creating potential for overreach. Although redressal mechanisms like appeals and post-registration account restoration are included, the very premise sets a troubling precedent for civil liberties.

Moreover, the criminalization of tax non-compliance—backed by penalties as high as Rs10 million and imprisonment up to 10 years—signals a shift from regulatory oversight to punitive enforcement. Arrest powers granted to Inland Revenue officers, with limited judicial safeguards, risk transforming tax administration into a quasi-policing institution. Particularly concerning is the provision to arrest corporate executives, which may disincentivize enterprise rather than deter fraud.

While Pakistan’s tax-to-GDP ratio remains dismally low and the need for aggressive reform is undeniable, such reforms must be balanced with rights-based principles and institutional transparency. The bill lacks robust oversight frameworks to prevent misuse of power, especially in politically charged environments.

The move toward digitizing transactions and formalizing the economy is laudable. But it must not come at the cost of procedural justice. Policymakers must reconsider the disproportionate criminalization of tax defaults and instead focus on incentivizing compliance, enhancing digital infrastructure, and restoring public trust.

In building a fair tax culture, coercion may win compliance—but not legitimacy.

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