FBR redrafts Sec 37A: Amended Finance Bill sets conditions for tax fraud arrests

ISLAMABAD: The amended Finance Bill (2025-26) has bound Federal Board of Revenue (FBR) to constitute a three-member committee to authorise the Commissioner to issue warrant of arrest against a person involved in tax fraud in cases where tax loss exceeds Rs 50 million.

Tax fraud cases involving an amount below Rs 50 million would not be liable to arrest through high-powered FBR committee in this particular situation under section 37A of the Sales Tax Act, 1990.

The said arrest would be made in a situation where the accused is intentionally or wilfully not joining the investigation after three notices; accused attempting to abscond or there are sufficient grounds that the accused would temper with the evidence.

Arrests for tax fraud: major changes made in sales tax law thru Finance Bill

According to the amended Finance Bill (2025-26), the FBR has redrafted section (37A) Power to inquire and investigate offences warranting prosecution under Sales Tax Act and Arrest of a person.

(1) Notwithstanding anything contained in Section 11E of this Act, an officer of Inland Revenue not below the rank of assistant commissioner or any other officer authorised by the Board in this behalf on the basis of material evidence pointing to the commission of tax fraud or an offence warranting prosecution under this act may initiate an inquiry upon approval by the Commissioner.

(2) For the purpose of an inquiry under this Act, the officer of Inland revenue shall have the powers of a civil court trying a suit under the Code of Civil Procedure,1908(Act No. V of 1908), in respect of the following matters, namely: (a) Summoning and enforcing the attendance of any person and examining on oath; and (b) Requiring the discovery and production of documents and receiving evidence on affidavits.

(3) The inquiry officer shall complete the inquiry while exercising the powers under the provisions of Section 37, 38, 38A, 38B, 40 or any other section of the Act, wherever required within six months.

(4) During inquiry proceedings, the inquiry officer shall give an opportunity of being heard to the person whose actions alleged to have caused tax fraud warranting prosecution under this Act, confronting the person the details of tax fraud committed or caused to be committed by such person for explanation.

(5) The inquiry officer shall submit inquiry report along with reasons to be recorded including the loss of tax calculated as a result of such inquiry to the Commissioner to obtain prior approval for investigation or the closure of inquiry without any further investigation.

(6) The Commissioner, on the basis of inquiry report under sub-section (5) and after recording reasons in writing, shall either-

(i) Approve initiation of investigation, or (ii) require the Officer of Inland Revenue to submit such further information or documents as he may direct for his decision; or (iii) close the inquiry by rejecting the report or accepting the report, as the case may be. Provided that a copy of the report shall be furnished to the person alleged to have committed the tax fraud.

(7) After approval of investigation under sub-section (6), the inquiry officer shall complete investigation within three months and prepare investigation report for submission before the competent court.

(8) The Board through a three member committee notified by the Chairman may authorize the Commissioner to issue warrant of arrest for a person in a case of a fraud which falls within the ambit of sub-clauses (a), (b), (c), (d), (e) and (f) of clause (37) of section 2 and the tax loss due to fraud exceeds the amount of rupees fifty million during the course of investigation if:-

(i) The accused is intentionally or wilfully not joining the investigation after three notices; (ii) The accused attempting to abscond; (iii) There are sufficient grounds that the accused would temper with the evidence.

(9) The officer of inland revenue may arrest a person alleged to have committed a tax fraud after obtaining an arrest warrant from the Special Judge in a case of a fraud falling within the ambit of the sub clauses of clause (37) of section 2 other than those mentioned in subsection (8) of this section during the course of investigation if: (i) The accused is intentionally or wilfully not joining the investigation after three notices; (ii) The accused attempting to abscond; (iii) There are sufficient grounds that the accused would temper with the evidence.

(10) Where the person suspected of tax fraud or any offence warranting prosecution under this Act is a company, every director or officer of that company whom the authorised officer has reason to believe is personally responsible for actions of the company contributing the tax fraud or any offence warranting prosecution under this Act shall be liable to arrest; provided that any arrest under this sub-section shall not absolve the company from the liabilities of payment of tax, default surcharge and penalty imposed under this Act.

(11) Notwithstanding anything contained in this Act, where any person has committed a tax fraud or any offence warranting prosecution under this Act, the Commissioner may, either before or after the inquiry or investigation, compound the offence if such person pays the amount of tax evaded or sought to be evaded as determined in the inquiry or the investigation along with default surcharge and penalty as provided under this Act.

(12) Any person accused of an offence who is arrested under this Act shall at the time of arrest be informed of the grounds of arrest in writing on the basis of which he has been arrested.

(13) All arrests made under this Act shall be carried out in accordance with the relevant provisions of the Code of Criminal Procedure, 1898 (Act V of 1898), the revised procedure of arrest added.

Copyright Business Recorder, 2025