The Federal Board of Revenue on Monday issued a circular addressing concerns raised by the business community, including its arrest powers and restrictions on cash transactions exceeding Rs. 200,000.
Last month, representatives of the business community met Army chief Field Marshal Asim Munir as well as officials of the Finance Ministry to share their grievances regarding steps undertaken to boost tax revenue in the Finance Act, 2025. The matter was forwarded to the Special Investment Facilitation Council (SIFC), which directed the FBR to issue a circular clarifying and addressing the concerns raised by businesspersons.
In its circular, the FBR said arrest warrants under Section 37A(9) would primarily be obtained in cases of serious sales tax fraud, particularly those involving fake or flying invoices. Specifying the conditions necessary for such warrants, it said sufficient proof must exist of the accused potentially tampering with evidence, attempting to abscond, or failing to cooperate with investigations after being served three notices.
The FBR said a separate Sales Tax General Order would be issued to detail the procedures, preconditions and restrictions for the smooth implementation of subsections (8) and (9) of section 37A. It maintained sufficient safeguards existed to prevent misuse, requiring multiple approvals at both the inquiry and investigation stages.
According to the circular, these provisions are not aimed at boosting recoveries, but rather deterring sales tax fraud. It said Section 37B has been amended to ensure any accused is presented before a court in accordance with the law and the Code of Criminal Procedure. Additionally, a new subsection (4) has been inserted in section 37, empowering Inland Revenue officers to exercise civil court powers under the Code of Civil Procedure, 1908.
On arrest warrants under 37A(8), the FBR said approval must first be granted by a three-member committee appointed by the chairman. Such warrants require the fraud to exceed Rs. 50 million and fall under specific categories, including the use of forged documents, false input tax claims, issuance of invoices without actual supply of goods, tampering with evidence, manipulation of tax returns, or fictitious compliance with tax regulations.
Also on Monday, the FBR announced it was withdrawing the Federal Excise Duty (FED) on the allotment and transfer of immovable property, imposed through Finance Act, 2024.
Additionally, a circular was issued on income tax, with the FBR stating that any deposit of cash against invoices in a bank account of the seller will be treated as having taken place through a banking channel and “no disallowance of the expenditure will be made in this regard under this clause.” It said this provision would not apply to agricultural produce unless it is sold by middle men.
This provision also authorizes the FBR to exempt any class of persons subject to conditions and limitations as it deems appropriate.
The FBR further altered the mechanisms it had defined to use artificial intelligence for the purpose of identifying tax evasion by authorizing its officers to reduce the amount of sales tax refund claims. The FBR had taken the authority to fix a certain limit of input tax adjustment based on Compliance Risk Management. It said that now the “input restrictions and conditions shall not be altered without meaningful consultation with the business and trade representatives related to the sector for which such action is intended.”
The tax body’s circular explains that its enforcement powers target hard to tax persons and promote documentation of the economy. It said these measures include bars on the operation of bank accounts, on the transfer of immovable property, sealing of business premises, seizure of immovable property and appointment of a receiver. “However, these enforcement measures shall be carried out in conformity with natural principles of justice and in a sequential manner to avoid undue hardships,” it added.
It said no extreme measure such as freezing bank accounts or business premises would be undertaken without first issuing a public notice of hearing. A hearing, it explained, would be conducted jointly by a concerned representative of the chamber of commerce and trade and concerned officer of Inland Revenue.
Such decisions would also be made public by placement on FBR’s website and newspapers, it added.