Islamabad, June 25, 2025 — In response to intense backlash over the expanded powers granted to tax officials in the Finance Bill 2025, the Federal Board of Revenue (FBR) has redrafted key provisions relating to the arrest powers of Inland Revenue officers.
The revised legislation is now pending formal approval by the National Assembly (NA).
The newly proposed framework introduces safeguards against misuse of arrest powers and mandates oversight mechanisms for prosecuting tax fraud cases under the Sales Tax Act, 1990. The FBR will constitute a three-member committee empowered to authorize the Commissioner to issue a warrant of arrest, but only in high-value tax fraud cases involving losses exceeding Rs 50 million.
As per the amended Section 37A, cases below the Rs 50 million threshold will not be eligible for arrest through the said committee. Arrests in such cases would only be made under exceptional conditions—such as when the accused fails to respond to three investigation notices, is found attempting to abscond, or there is credible evidence suggesting tampering with evidence.
The new draft law clarifies that the arrest powers can only be exercised by Inland Revenue officers not below the rank of Assistant Commissioner, who must act on material evidence and obtain prior approval from the Commissioner. The inquiry process under these powers is governed by provisions of the Code of Civil Procedure, 1908, allowing officers to summon witnesses, examine individuals on oath, and require documentation.
The inquiry must be concluded within six months, and the person alleged to have committed fraud will be provided an opportunity to respond before further action. The inquiry officer is obligated to submit a detailed report outlining tax losses and justifications for continuing or closing the case.
Following the inquiry, the Commissioner has three options: approve an investigation, seek further documentation, or close the case. If an investigation is approved, it must be completed within three months, and a formal investigation report must be submitted to the competent court.
During the investigation phase, the three-member committee may authorize the Commissioner to issue a warrant of arrest if the alleged fraud exceeds Rs 50 million and falls under specific clauses of the law. Again, the accused must show willful non-cooperation or risk of absconding or tampering with evidence for the warrant to be considered.
For lower-value frauds, arrest powers remain available but require approval from a Special Judge, and only under the same stringent conditions. The legislation also extends liability to directors and officers of companies involved in tax fraud. Such individuals may be arrested if found personally responsible, though this does not absolve the company from financial liabilities.
Furthermore, the FBR has added provisions allowing the Commissioner to compound offences—before or after inquiry or investigation—if the accused agrees to pay the evaded tax along with surcharges and penalties.
Every individual arrested under this Act must be informed in writing of the grounds for their arrest at the time of detention. All arrests must conform to the Code of Criminal Procedure, 1898, thereby aligning FBR’s arrest powers with due process under Pakistani law.
With these revisions, the FBR aims to balance effective enforcement against tax fraud with constitutional safeguards and transparency, ensuring arrest powers are exercised responsibly and under appropriate judicial oversight.