Karachi, August 10, 2025 – In a major crackdown on financial malpractice, the Federal Board of Revenue (FBR) has shattered the long-standing belief that banks are immune from legal consequences when involved in tax fraud.
Under new provisions introduced through the Finance Act, 2025, banks can now face prosecution for abetting or facilitating tax fraud, marking a significant shift in Pakistan’s enforcement landscape.
For years, according to FBR insiders, certain commercial banks allegedly played a silent yet pivotal role in enabling fraudsters. This included maintaining multiple accounts to facilitate illicit sales tax refund transactions, manipulating financial records, and providing discreet banking channels for those engaged in tax fraud. These activities, officials say, contributed to massive revenue losses for the national exchequer.
The Finance Act, 2025 has officially classified banks as “abettors” under Clause (1) of Section 2 of the Sales Tax Act, 1990. This definition covers any person or entity that intentionally aids or conspires in tax fraud, or commits offences punishable under the Act. Specific actions qualifying as abetment include preparing false invoices for input tax adjustment, permitting the use of bank accounts for fraudulent activities, or operating unauthorized business accounts in another registered person’s name.
Clause (37) of Section 2 elaborates on what constitutes tax fraud. Offences range from issuing fake invoices without actual supply of goods, forging tax returns, and generating fictitious input credits, to manipulating FBR’s return filing system. Other forms of fraud include destroying material evidence, making taxable supplies without registration, and suppressing taxable transactions to evade payment.
Additionally, the law addresses complex schemes where funds are routed back to a registered person through intermediary accounts, creating a façade of compliance. Suppression of supplies, non-payment of withholding tax, and illegal handling of goods liable to confiscation are also explicitly listed as prosecutable offences.
The revised framework aims to close loopholes that allowed certain banks to assist clients in tax evasion without fear of repercussions. FBR officials believe that holding financial institutions accountable will not only deter complicity in fraud, but also strengthen the integrity of Pakistan’s taxation system.
With this move, the government is sending a clear message: financial institutions must maintain strict compliance standards, and any collusion in tax evasion will invite severe legal and reputational consequences.