FTO tells FBR: No coercive recoveries till payment of refunds

ISLAMABAD: The Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue’s Member Inland Revenue (Operations) to issue instructions to all field formations, directing that coercive recovery measures against any outstanding tax demand shall not be initiated till all pending refund claims and adjustment requests of the taxpayer have been disposed of.

In a landmark order, the FTO has found the Tax Office Islamabad guilty of maladministration for deliberately sitting on a legitimate refund claim.

When contacted taxpayer lawyer Waheed Shahzad Butt informed that taxpayer had been chasing pending income tax refunds for 2017 to 2023. As the deadline for filing 2025 return approached, the company approached the department with a legal request, adjust the outstanding refund claim against the tax liability for TY 2025, a right explicitly provided under Section 170(3).

After no response of the Tax department, taxpayer filed a complaint before the FTO, Waheed added.

The FTO’s findings are unambiguous. The order records that under Section 170(4) the department was legally obligated to dispose of the refund application. The department missed this statutory deadline without any justification. More tellingly, the FTO found that it was only after this office issued formal notices that the department finally stirred, issuing a Section 170(4) notice, more than two months after the taxpayer had filed the FTO complaint.

The FTO also raised a pointed observation regarding the department’s double standards, while the tax machinery demonstrates extraordinary efficiency in adjusting refunds against tax demands raised by the department itself under Section 170(3), the identical legal right, when invoked by taxpayers, is routinely stonewalled. The order explicitly states that “such arbitrary treatment needs to be discouraged,” classifying the conduct as maladministration.

Butt pointed to the FTO’s own observation about the asymmetric application of Section 170(3) as evidence of institutional bad faith. The FTO has rightly noted that when the department wants to adjust a refund against its own demand, it happens overnight. But when a taxpayer makes the same request against their tax liability, suddenly the law is forgotten. This two-tiered system, one rule for the department, another for the taxpayer, is the hallmark of a predatory tax administration. It must be dismantled, he added.

Copyright Business Recorder, 2026