ISLAMABAD – June 17, 2025:
Prime Minister Shehbaz Sharif has directed the Federal Board of Revenue (FBR) to implement a strict set of conditions before arresting individuals in tax fraud cases. Amid growing concerns from parliamentarians and the business community, the Prime Minister called for amendments to the Finance Act to prevent the misuse of authority by tax officials.
Chairing a high-level review meeting on Monday, Shehbaz Sharif emphasized the need for checks and balances within the FBR’s enforcement mechanism. He instructed that no taxpayer or businessperson should face harassment under any circumstances, and ordered the creation of a special oversight committee. The meeting was attended by several federal ministers, economic experts, the Chairman of FBR, and other senior officials.
Officials briefed the Prime Minister that the power to arrest sales tax defaulters has existed since the 1990s. However, recent court decisions prompted a review of these provisions. As a result, changes are being incorporated to ensure legal clarity and avoid undue harassment of taxpayers.
“The respect and dignity of taxpayers, especially the business community and investors, are of utmost importance,” Shehbaz stated. He added that arrest powers should only apply in extraordinary cases involving large-scale tax fraud, and must be backed by clear procedural safeguards.
The Prime Minister laid down six conditions that must be met before any arrest is made under tax laws. These include: the accused attempts to escape or flee jurisdiction; evidence tampering is suspected or observed; the person fails to appear despite being served three separate notices; the tax fraud exceeds a certain monetary threshold; for arrest of senior executives such as CEOs, CFOs, or board members, the fraud must exceed PKR 50 million; and approval must be obtained from a special board that includes FBR officials and a private sector representative.
Shehbaz Sharif further ordered the establishment of an external review mechanism and instructed that these safeguards be included in the Finance Act. He also directed that coalition partners in the Parliament be consulted before finalizing the provisions.
The FBR, under pressure to meet its Rs389 billion revenue enforcement target agreed with the IMF, had proposed increasing the arrest threshold and penalties. This included eliminating the PKR 1 billion fraud threshold and raising imprisonment from five to ten years. However, the PM’s directions aim to balance enforcement with fairness.
The Senate Standing Committee on Finance, chaired by Senator Saleem Mandviwalla, also raised serious concerns over tax enforcement. Senator Farooq H. Naek proposed reducing penalties and sentencing terms to make them more proportionate. He also recommended a phased legal process: separate stages for inquiry, investigation, and trial.
Senator Anusha Rehman exposed how surplus funds of various authorities, including Rs45 billion from an abandoned body, were being parked outside the government’s consolidated account. She also criticized NADRA’s excessive verification charges, including those applied to the ECP during elections.
The committee also discussed FBR’s regulation of online marketplaces. Senator Anusha Rehman emphasized protecting youth and women entrepreneurs by avoiding blanket taxes on all e-commerce activity. She proposed setting a reasonable threshold for mandatory registration.
On e-billing, Senator Mohsin Aziz urged the government to assess readiness, citing Malaysia’s three-year phased rollout. Mandviwalla supported bringing structured proposals forward.
The Senate panel reviewed multiple clauses of the Finance Bill 2025-26, including the gradual phasing out of tax exemptions for FATA/PATA. Starting with a 10% GST, it will rise to 18% in the coming years. The committee also approved abolition of the Federal Excise Duty (FED) on immovable property. Concerns were raised by provincial representatives regarding FBR’s expanding role in areas constitutionally reserved for provinces, particularly on service taxes.
The meeting concluded with the Prime Minister’s firm direction to maintain balance between enforcement and protection of taxpayer rights. All legal and constitutional safeguards must be integrated into the Finance Act before implementation begins.
