ISLAMABAD: The Senate Standing Committee on Finance and Revenue on Sunday rejected a controversial proposal by the Federal Board of Revenue (FBR) seeking powers to arrest individuals at the investigation stage in tax fraud cases, and recommended for defining a threshold and establish slabs for allowing arrests on tax frauds and imprisonment of up to ten years.
The committee, which met under chair of Senator Saleem Mandviwalla to review budgetary proposals related to sales tax laws, strongly opposed the FBR’s proposal to allow tax officials to arrest person involved in tax fraud without court approval.
Debate took place on Clause 37A, explaining the arrest powers of the Assistant Commissioner which originally allowed Assistant Commissioners to arrest, has now been revised to require prior inquiry and Commissioner’s approval for arrest. Minister of State for Finance Bilal Azhar Kiyani clarified that this amendment is a step toward protecting procedural integrity and reducing arbitrary arrests.
Tax fraud: IR officers get power of arrest
Kiyani stated that they were improving the procedures of allowing arrest in tax frauds under the proposed bill and explained that in the existing provision of Sales Tax under 37 A to prosecute and arrest whereby Assistant Commissioner IR who based on material evidence has reason to believe that any person has committed a tax fraud or any offence warranting prosecution may cause arrest of such person but now under the proposed bill the Assistant Commissioner would have to seek permission of Commissioner to initiate inquiry. He was of the view that the proposed bill placed safeguards to restrict the powers of the FBR.
On the threshold of tax frauds, the FBR proposed that there should be a limit of Rs 10 million maximum for allowing arrest.
However, Chairman FBR Rashid Mehmood Langrial stated that tax fraud cannot be tolerated at all.
A heated debate occurred among Senators and FBR high-ups over whether the arrest in tax fraud to be allowed during the inquiry or after completion of the investigation.
Senator Farooq H Naek from the PPP stated that the arrest could only be allowed by the FBR after permission from the judge.
The current law permits FBR officials to make arrests during the inquiry stage. However, the FBR proposed in the Finance bill that tax officials can arrest the individuals involved in tax fraud at the investigation stage after completing inquiry.
FBR Chairman Rashid Langrial told the committee that the FBR itself has recommended stronger checks on these powers. He revealed that influential individuals, including a former senator, have also committed tax fraud, saying “We have documented video proofs.”
He further revealed that a former Pakistan Customs official, now in FBR custody, had advised a shoe manufacturer on how to commit sales tax fraud, resulting in the evasion of millions of rupees.
Senator Naek said only a court of law can authorise the arrest of a person accused of tax fraud.
Chairman FBR argued that tax fraud is a criminal offence and that individuals involved in fraud of Rs 1 billion or more deserve arrest.
Senator Naek argued that the NAB law was amended because earlier, the arrest was allowed during the inquiry, and now the FBR was proposing sweeping powers. He maintained that any such arrest must be approved by a court.
The Finance Bill includes severe penalties for tax fraud: 10 years imprisonment and 100% fines for fraud exceeding Rs. 10 million. Fake invoice generators to be treated as tax fraudsters. Special judges to be empowered to punish offenders
Langrial strongly defended the proposed changes in the Finance Bill and stated that if anyone steals a motorcycle, it becomes a cognizable offence, but the Parliamentary Committee was asking not to arrest anyone involved in tax fraud worth millions of billions of rupees.
In related decisions, the committee recommended stricter punishments, for five years jail up to Rs 1 billion tax fraud and for frauds above Rs 1 billion, the punishment would increase to ten years in jail.
At one point in time, the Chairman FBR stated that if the parliamentary panel was not fine with the proposed safeguards, then they would be fine with the existing powers.
The committee advised the FBR to revisit the proposal in consultation with the Attorney General and the Finance Minister and return with revised suggestions.
In response to mounting objections over registration rules and arrest powers, Chairman FBR assured a redraft of the relevant provisions. “We’ll review this again and bring a revised version by tomorrow,” said Chairman FBR
The FBR has proposed drastic powers, including the sealing of business premises, the seizure of movable property, or the appointment of a receiver for the management of the taxable activity of a person who fails to register themselves. It also proposes to bar operations of bank accounts and transfers for immovable property owners who prefer not to get registered for the Sales Tax.
FBR Chairman assured the panel that no sealing or seizure action would be taken without first holding a public hearing, involving tax officials and representatives from business chambers.
Copyright Business Recorder, 2025
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