The Federal Board of Revenue (FBR) has introduced significant amendments to the sales tax law in the Finance Bill 2025, aiming to strengthen the state’s ability to take action against tax evasion and fraud. These changes, which are currently under discussion in the National Assembly and among business stakeholders, mark a shift in how tax authorities can initiate arrests for suspected fraud.
In a statement issued on Friday, the FBR acknowledged that there is public confusion regarding some of the proposed amendments. It clarified that the power to arrest individuals for tax fraud is not new. In fact, Section 37A of the Sales Tax Act, 1990 already outlines this authority, along with the legal process to be followed — including immediate notification to the Special Judge and presenting the arrested individual within 24 hours.
However, the proposed amendments significantly alter the process by introducing stricter checks and balances. Under the new rules, tax officers cannot arrest a person without first conducting a formal inquiry and securing written approval from the Commissioner Inland Revenue (CIR). Only after this inquiry confirms grounds for suspicion will the investigation proceed, with the officer gaining limited powers similar to those granted to police under the Criminal Procedure Code.
Importantly, arrests can only take place if the investigation officer has substantial reasons to believe a fraud has been committed, and even then, only with prior clearance from the CIR. Furthermore, if an arrest is later found to be malafide or unjustified, a fact-finding inquiry will be conducted by the Chief Commissioner.
These changes aim to replace the previous system, where even an Assistant Commissioner could order arrests, with a more transparent and accountable process. The FBR emphasized that the reforms are meant to reassure honest taxpayers that enforcement will be targeted, justified, and fair — discouraging tax evasion while protecting compliant businesses.
FBR Chairman Rashid Mahmood Langrial has expressed openness to further dialogue on the reforms. He suggested that the arrest provisions could be made even stricter by requiring approvals from multiple senior officers instead of just one, to ensure better safeguards.
Recognizing concerns from the business community, Prime Minister Shehbaz Sharif has taken a proactive step by establishing a high-level committee to review the proposed arrest powers. Headed by the Finance Minister, the committee includes the Ministers of Law, Economic Affairs, and State for Finance, as well as the SAPM on Industries and the FBR Chairman. Their task is to carefully evaluate the amendments and propose additional protections to prevent abuse of authority.
This committee will also assess how to ensure that genuine economic activity is not hindered and will submit its recommendations to the Prime Minister within three days.
In its statement, the FBR reaffirmed its commitment to protecting the rights of law-abiding taxpayers while also boosting revenue collection by cracking down on those who evade taxes. “Our aim is to reward compliance and penalize evasion — not to harass honest businesses,” the statement concluded.
