FBR reprimanded for taking ‘coercive’ steps

ISLAMABAD: In a major development, the Federal Tax Ombudsman (FTO) has stopped the Federal Board of Revenue (FBR) from recovery of Super Tax through ‘coercive measures’ including recovery from capital gains arising from inherited properties.

The Federal Tax Ombudsman (FTO) has directed the FBR to issue a clear policy/ clarification regarding applicability of Section 4C (Super Tax) to all segments including capital gains arising from inherited properties.

The FTO has further directed the FBR that the recovery through coercive measures need to be suspended till FBR discharges its legal obligation under Section 4C (6) of the Income Tax Ordinance 2001.

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Under Section 4C (6), the Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section. After the announcement of short order by FCC, immediate & indiscriminate drive for recovery is unjustified, FTO order stated. The issue in hand relates to levy & recovery of Super Tax, especially in cases wherein capital gain is being worked out on sale of inherited properties, treating deemed gain income as baseline for imposition and recovery of Super Tax u/s 4C of Income Tax Ordinance, 2001, FTO directions added.

According to an order of the FTO issued against Regional Tax Office Rawalpindi, the complainant agitates against RTO Rawalpindi for initiation of coercive recovery proceedings against him on account of alleged liability under Section 4C of the Income Tax Ordinance, 2001 (the Ordinance) despite the fact the Supreme Court of Pakistan has only announced a short order/ judgment in respect of matters relating to Section 4C, whereas the detailed judgment containing reasoning and applicability parameters is still awaited. Thus, without waiting for the detailed judgment and clarity on scope, the department has proceeded to issue recovery notices.

The FTO order stated that initiation of recovery proceedings before issuance of the detailed judgment amounts to maladministration, as the legal reasoning, applicability criteria, and scope of Section 4C remain unsettled. “The enforcement actions during pendency of final authoritative interpretation are arbitrary, excessive, and contrary to principles of fairness and good governance.”

The complainant further stated that the alleged liability pertains to capital gains arising from inherited property, which is exempt and/ or zero-rated under prevailing tax law. Furthermore, without issuance of a clear policy or clarification regarding inherited property cases, the department’s action is inconsistent, discriminatory and devoid of legal certainty. Though in terms of Section 4C (1) read with (2)(i), high earning persons, deriving income from various segments like profit on debt, dividend, capital gains, brokerage and commission are liable to Super Tax, yet thus far FBR has not issued any guidelines, policy document or any clarification-related circular regarding applicability of Section 4C to different segments.

After the announcement of short order by FCC, immediate & indiscriminate drive for recovery is unjustified because Section 4C(6) clearly reads; “(6) The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.”

FBR’s failure on above account reflects its ineptitude and inattention which tantamount to maladministration, FTO order added.

Copyright Business Recorder, 2026