FBR assures of safeguards to prevent misuse of arrest powers

• Arrest powers already set out in Sales Tax Act, 1990.
• Proposed tweaks restrict arrest powers to prior inquiry.
• CIR to only authorise arrest on relevant probe's findings.
  

ISLAMABAD: The Federal Board of Revenue (FBR) has assured that relevant safeguards were in place to prevent misuse of arrest powers in the proposed Finance Bill 2025-26, The News reported on Sunday.

In a statement, the FBR has pointed out several news stories in digital and print media recently which suggest that some of the amendments introduced to the bill were not well understood by the general public including the legal provisions for the arrest of those involved in tax fraud.

The said provisions have already been provided under Section 37A of the Sales Tax Act, 1990 along with an elaborate procedure to be followed after the arrest which involves intimating to the special judge immediately and the production of such a person before the judge within 24 hours.

However, the proposed amendments now restrict the powers of an officer to arrest by making a prior inquiry after approval of the Commissioner of Inland Revenue (CIR). Only on the basis of the findings of the inquiry, the CIR will authorise the investigation which would give the investigation officer the powers of an officer in charge of a police station under the Code of Criminal Procedure, 1898 (Act V of 1898).

The arrest can only be made with the prior approval of the CIR if the investigation officer has reasons to believe that tax fraud has been committed by a person.

The new legal provision further provides that if the arrest is mala fide, the matter will be referred to the chief commissioner for a fact-finding inquiry. This shows that in contrast to the earlier provision where an assistant CIR could arrest an offender, the new provisions bring transparency in the process through a mandatory prior inquiry and investigation and final permission by the CIR.

Moreover, certain changes are also necessary to reassure the compliant taxpayers that those evading taxes or involved in tax fraud are dealt with by the state with an iron hand. FBR Chairman Rashid Mahmood Langrial has expressed willingness to discuss the recent changes made in the tax laws and introduce changes wherever needed, for example, the provisions related to an arrest could be revised to mandate the permission of multiple senior officers before any arrest.

Furthermore, to ensure that these powers are not misused by the authorised tax officers against the compliant taxpayers and business community, Prime Minister Shehbaz Sharif has formed a high-powered committee which will be headed by the finance minister to evaluate the proposed amendments and suggest adequate safeguards to prevent potential misuse of powers.

The other members of the committee will include ministers of law and economic affairs division, minister of state for finance, SAPM on industries and FBR chief.

The committee will also examine various options to ensure that legal economic activities are not stifled and propose additional protective measures against unlawful use of authority and will submit its recommendations to the prime minister in three days.

The FBR is committed to safeguarding the legal rights of compliant taxpayers and increasing tax collection and state revenues by discouraging non-compliant taxpayers and acknowledging those who are paying their due share to the state.

It is to be noted that PM Shehbaz has set out six pre-requisite conditions for incorporating arrests of CEOs, CFOs and board of directors which include;

• If a person involved in tax fraud tries to escape; 
• Tries tampering of evidence; 
• Three notices were issued for summoning but not appearing;
• Certain tax fraud limit; 
• Tax fraud of Rs50 million for arrest of executives; 
• Approved by special board of the FBR along with representative of private member probably from the chamber of commerce for arrests.
  

Furthermore, the Senate Standing Committee on Finance has asked FBR to define a threshold and establish slabs for allowing arrests on tax frauds and imprisonment of up to ten years under the proposed Finance Bill 2025-26.

The tax collection body has proposed that there should be a limit of Rs10 million maximum for allowing arrest.