Karachi, May 21, 2025 – Banks in Pakistan have raised significant concerns regarding the existing framework for tax recovery enforced by the Federal Board of Revenue (FBR) on account holders.
As part of their tax proposals for the upcoming budget 2025-26, banks have highlighted key challenges related to the process and communication of tax recovery notices, calling for urgent reforms to ease operational difficulties and improve transparency.
Banks report that current tax recovery procedures under sections 176 and 140 of the Income Tax Ordinance, 2001, have created operational inefficiencies and disputes. One major issue is that a single recovery notice often demands information or action relating to multiple taxpayers, complicating the banks’ ability to comply effectively. Moreover, banks point out that customers are not routinely informed about recovery notices as mandated under Rule 210C of the Income Tax Rules, 2002, causing confusion and dissatisfaction among account holders.
Further, banks note that recovery notices are sometimes issued by officers other than the Commissioner, which goes against Rule 201B of the Income Tax Rules, adding to procedural inconsistencies. The notices often lack clarity about whether all legal prerequisites have been fulfilled by the relevant officer, leading to disputes among banks, regulators, and customers alike. Additionally, recovery notices frequently omit the tax period concerned, making it difficult for banks to reconcile these demands with stay orders submitted by customers.
To address these challenges, banks have proposed important amendments to the recovery rules. These include drafting a standardized information and recovery notice in consultation with the Pakistan Banking Association (PBA) and the State Bank of Pakistan (SBP) to minimize non-compliance and operational risks for financial institutions. It is also recommended that customers receive copies of all correspondence related to recovery actions.
Banks advocate for issuing clear operational instructions to field officers and require FBR to develop a uniform recovery notice format ensuring full legal compliance and transparency. Including the tax period in recovery notices will greatly facilitate reconciliation with stay orders, improving efficiency.
Importantly, banks propose the formation of a centralized recovery unit within the FBR to streamline tax recovery processes. This unit would enhance coordination between regulators and financial institutions, ultimately reducing disputes and fostering smoother recovery operations.
By implementing these changes, banks aim to establish a fairer, more transparent, and efficient tax recovery mechanism, benefiting both the financial sector and taxpayers alike.