Tax authorities criticised for delays in recovery despite legal provisions under Section 138 of the Income Tax Ordinance
ISLAMABAD: A recent audit report has revealed that the Federal Board of Revenue (FBR) failed to recover more than Rs62.32 billion in outstanding tax liabilities in 1,571 cases, despite possessing extensive legal powers to initiate recovery proceedings against defaulting taxpayers.
Under Section 138 of the Income Tax Ordinance, 2001, tax authorities are authorised to recover outstanding tax dues through a range of enforcement measures, including the attachment and sale of movable and immovable property, as well as the arrest and detention of defaulting taxpayers in accordance with the law.
According to the audit covering fiscal years 2022-23 and 2023-24, conducted across 16 FBR field formations, tax demands had been raised against 1,571 taxpayers. However, the authorities failed to recover the outstanding amounts despite the lapse of considerable time, resulting in non-recovery of Rs62.321 billion.
The audit attributed the shortfall to weak enforcement and delays in initiating recovery proceedings, stating that the department did not effectively utilise the legal mechanisms available under the Income Tax Ordinance to realise the outstanding revenue.
The irregularities were communicated to the tax authorities between February and November 2024. In response, the department informed auditors that only Rs2.90 million had been recovered, while tax demands amounting to Rs2.011 billion had been raised but were still awaiting recovery.
The department further stated that legal proceedings had been initiated in cases involving claims worth Rs59.819 billion, although these proceedings had yet to be concluded. In addition, tax demands amounting to Rs487.50 million remained sub judice before various judicial forums.
The Departmental Accounts Committee (DAC), during meetings held between July 2024 and January 2025, directed the relevant authorities to recover the admitted tax amounts, expedite pending legal proceedings, actively pursue cases under litigation and submit compliance reports to both the Audit Department and the FBR.
However, the audit observed that no meaningful progress had been reported by the time the report was finalised, raising concerns over the effectiveness of the FBR’s recovery and enforcement mechanisms.
The audit recommended that the FBR accelerate the recovery of outstanding tax liabilities, conclude pending legal proceedings without unnecessary delay and vigorously pursue cases pending before courts to safeguard public revenue.
It also called for strengthening monitoring and recovery controls by establishing a dedicated supervisory mechanism independent of the tax assessment function to improve enforcement, enhance accountability and prevent prolonged revenue leakages in future.
