Sale Tax, Income Tax departments: Experts divided over separation amid compliance concerns

ISLAMABAD: Tax experts have given mixed response to the separation of sales tax and income tax departments, warning the move may result in repeated tax demands for the same records, overlapping inquiries, inconsistent treatment of transactions and more tax offices to approach taxpayers.

Advocate Supreme Court of Pakistan Dr Ikramul Haq told Business Recorder that the FBR has initiated separation of sales tax administration from income tax, including separate sales tax zones. This is an unwise move towards fresh silos while the declared reform agenda promises integration. A specialist technical member could support an integrated service; separate field jurisdictions risk multiplying taxpayer dealings, repeated demands for records and uncoordinated inquiries into the same business transactions.

Income tax and sales tax already require distinct returns: administrative separation threatens additional compliance costs rather than creating those obligations for the first time. The FBR should publish the new jurisdictions, their relationship with the four-wing model, transition costs and safeguards against duplicate proceedings. Expertise can be strengthened through specialist teams using shared taxpayer records and coordinated audits. Reorganising the machinery repeatedly without demonstrating a reduction in taxpayers’ costs exemplifies reform without a settled direction.

Tax expert said that a common portal helps, but cannot by itself settle conflicting laws or determine which government is entitled to tax a transaction.

The decision to separate sales tax and federal excise administration from income tax within FBR makes this fragmentation more troubling. Press reports suggest that taxpayers would face separate sales tax and income tax commissioners from January 2027. Creating another administrative silo is an unwise reversal of the logic of integrated revenue administration.

Senior tax advisor warned that the separate returns already exist; the additional danger is repeated demands for the same records, overlapping inquiries, inconsistent treatment of transactions and more offices to approach for redress. These are foreseeable risks, not evidence that every burden has already materialised. Specialised expertise can be organised within an integrated service, using shared records and coordinated audits. FBR should explain how the separation will reduce taxpayers’ costs; otherwise, it risks making citizens pay for another bureaucratic rearrangement, Dr Ikramul Haq added.

Waheed Shahzad Butt, Chairman of the Lahore Tax Bar Association (LTBA) Public Interest Litigation Committee, co has appreciated the Federal Board of Revenue’s new restructuring wing for sales tax. He said it will strengthen the tax system against organized sales tax fraud.

The FBR created the post of Member, Sales Tax & FED (Technical) on Friday, with the approval of the Board-in-Council. It transferred and posted 54 Inland Revenue officials to the new wing. From January 2027, sales tax matters are to be handled by separate Commissioners.

The Chairman said a dedicated sales tax structure will help the system deal with the flying and fake invoices, illegal issuance of inadmissible sales tax refunds, misuse of zero-rating and other forms of sales tax fraud. He said these practices have long drained the National Exchequer (taxpayer money) and burdened honest taxpayers. In his view, a specialized wing with focused technical leadership will be better placed to detect and stop them.

He added that the wing will also help the FBR adopt stronger sales tax measures and close the loopholes that fraudsters have exploited. Sales tax is an invoice-driven, transaction-based levy, so it needs dedicated expertise and close monitoring. Stronger enforcement, he said, will protect genuine taxpayers and improve revenue collection.

The change separates sales tax/FED from income tax in the FBR’s organizational structure. LTBA-PILC Chairman said the new wing deserves a fair chance to show results.

Waheed added that the FBR should clearly define its functions so that taxpayers and field formations work smoothly under the new system.

Copyright Business Recorder, 2026