Prime Minister Shehbaz Sharif on Monday directed the inclusion of six safeguards in the Finance Act to prevent misuse of the arrest powers granted to Federal Board of Revenue (FBR) officers in tax fraud cases.
The newly-granted arrest powers had incited objections from parliamentarians and the business community, prompting the premier to chair a review meeting. Ordering the formation of a special committee, Sharif emphasized that tax officers must not harass taxpayers and businesspersons under any circumstances.
During the meeting, the prime minister was informed that legal provisions for the arrest of sales tax defaulters had been part of the law since the 1990s, but required amendments to improve their coherence in light of court rulings.
“Respect and dignity of the business community and investors is of utmost importance to us and any unjustified harassment is intolerable,” he added. He further instructed that the mandate of arrest under relevant tax laws should be limited only to cases involving defaulters of an extraordinary scale.
Additionally, the prime minister directed the formation of an effective system of external review and checks and balances regarding arrests. Provisions related to protection against misuse of these laws should be included in the Finance Act, he said, adding all allied parties in Parliament should be consulted.
The six prerequisite conditions for arrests of CEOs, CFOs and board of directors are:
- If a person involved in tax fraud tries to escape;
- tries tampering with evidence;
- fails to appear before officers after three notices for summoning;
- certain tax fraud limit, with tax fraud of Rs. 50 million or more for arrest of executives;
- approved by special board of the FBR along with representative of private member.
The controversial arrest provision is an attempt by the FBR to boost its tax revenue, as Finance Minister Muhammad Aurangzeb has said the IMF agreed to allow lower taxes in exchange for the FBR materializing Rs. 389 billion through effective enforcement of the Finance Bill 2025-26.
The preexisting law had placed a Rs. 1 billion threshold for arrests and imposed imprisonments of up to 5 years. The new law seeks the abolition of the threshold and imprisonment of up to 10 years.