ISLAMABAD: The Finance Act 2025 has significantly expanded the definition of tax fraud, prompting considerable unrest and concern among the business community. This extensive revision has raised alarm bells, as many fear it may impose stricter regulations and heavier penalties, potentially impacting their operations and compliance efforts.
Explaining the issue, Arshad Shehzad, noted legal expert and advocate Supreme Court informed, the scope of sales tax fraud is expanded to the extent that even routine tax affairs are now included in its ambit.
The amended legal position now grants excessive and potentially abusive powers to the tax officer which causes unrest among the business community.
Arrests for tax fraud: major changes made in sales tax law thru Finance Bill
It is imperative to note that power to arrest is co-related to the charge of tax fraud and it is not the power of arrest which causes unrest but the enlarged scope of tax fraud which may cause arrest to the genuine taxpayer is the point of recent controversy among business community and government.
The provision of amended section 2(37) is reproduced hereunder:-
(37) “tax fraud” means knowingly, intentionally or dishonestly doing any act or causing to do any act or omitting to take any action or causing the omission to take any action, to cause loss of tax or attempting to cause loss of tax under this Act, including-
a) using or preparing false, forged and fictitious documents including return, statements annexure and invoices; b) suppression of supplies that are chargeable to tax under this Act; c) false claim of input tax credit including based on fictitious transactions; d) making taxable supplies of goods without issuing any tax invoice; e) issuance of any tax invoice without supply of goods; f) suppression and non-payment of withholding tax in the prescribed manner beyond a period of three months from due date of payment of tax; g) tampering with or destroying of any material evidence or documents required to be maintained under this Act or the rules made there under; h) acquisition, possession, transportation, disposal or in any way removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner dealing with, any goods in respect of which there are reasons to believe that these are liable to confiscation under this Act or the rules made there under; i) making of taxable supplies without getting registration under this Act; j) generating fake input through manipulation of return filing system of the Board and making fake entries in the sales tax returns or in the annexures; and, k) making fictitious compliance of section 73, including routing of payments back to the registered person, or for the benefit of the registered person, through a bank account held by a supplier or a purported supplier.
Arshad Shehzad further explained that upon reviewing the new provisions of tax fraud, it is evident that clauses “a” through “f” contain general allegations that the tax department routinely levels against taxpayers. For instance, the department claims that all input tax invoices are inadmissible or illegal if, according to their interpretation, the supplier has since become non-active or suspended following the transaction. Based on these clauses, the department initiates proceedings under the guise of tax fraud and claims the authority to make arrests under section 37(AA). Another common charge against taxpayers is the suppression of sales, which the department often alleges based on various presumptions, such as utility consumption, raw material usage ratios, or bank credit entries. Allegations of non-payment or short payment of withholding tax have also been included under the definition of tax fraud. Ironically, short payment and not payment of withholding is now also included under the charge of tax fraud.
Moreover, the explanatory clause states that all these offences are considered intentional unless proven; otherwise, effectively shifting the burden of proof onto the taxpayer. This contradicts the fundamental principle that everyone is presumed innocent until proven guilty. Such powers are typically granted under the NAB ordinance, which was amended by politicians who previously suffered from such harsh laws, Shehzad informed.
In his opinion, in order to undermine the Supreme Court of Pakistan’s judgment in the Taj International case, the recent amendments are introduced. These laws suggest that, despite having access to resources and electronic means, the tax department may not be willing to perform its duties adequately. Instead, it seems poised to target genuine taxpayers under the pretence of tax fraud, using harassment, coercive measures, and intimidation to collect undue taxes.
Such draconian laws create an unwelcoming environment for business and investment in the country and therefore government need to review the law and issue necessary SOP to tone down the scope of tax fraud in more appropriate manner to protect genuine business community from the potential threat of this law, Arshad Shehzad concluded.
Copyright Business Recorder, 2025