Section 138 of the Income Tax Ordinance, 2001, empowers tax authorities to recover unpaid dues through property attachment, receivership and detention, subject to the law’s prescribed conditions.
ISLAMABAD: The Federal Board of Revenue (FBR) has outlined the legal mechanism for recovering unpaid income tax, including provisions allowing the arrest and detention of taxpayers for up to six months under Section 138 of the Income Tax Ordinance, 2001.
The provision is contained in the Ordinance updated up to June 30, 2026, for Tax Year 2027, covering the period from July 1, 2026, to June 30, 2027.
Under Section 138(1), the Commissioner may issue a notice to a taxpayer requiring payment of outstanding tax within the period specified in the notice.
If the taxpayer fails to pay the amount within the stipulated period or any additional time allowed by the Commissioner, the tax authority may initiate recovery proceedings through one or more methods prescribed under Section 138(2).
Four methods of tax recovery
The Ordinance provides the following recovery mechanisms:
• Attachment and sale of property: The Commissioner may attach and sell the taxpayer’s movable or immovable property to recover outstanding tax.
• Appointment of a receiver: A receiver may be appointed to manage the taxpayer’s movable or immovable property.
• Arrest and detention: The taxpayer may be arrested and detained in prison for a period not exceeding six months.
• Other statutory recovery measures: Recovery may also be pursued through the mechanisms specified in clauses (a), (ca) and (d) of Section 48(1) of the Sales Tax Act, 1990.
Under Section 138(3), the Commissioner has powers similar to those exercised by a civil court under the Code of Civil Procedure, 1908, for recovering amounts due under a decree.
Special recovery provisions for tax demands exceeding Rs200 million
Section 138(3A) sets out additional conditions for the recovery of certain substantial tax demands.
Under this provision, tax payable under the Ordinance or an assessment order becomes immediately recoverable where the case has been decided in favour of the tax department at three appellate forums, including the High Court.
The provision further stipulates that recovery must be limited to the lowest amount of tax demand confirmed by any of those three appellate forums.
Additionally, the tax payable must exceed Rs200 million. Where these conditions are met, the Commissioner is directed to proceed with recovery irrespective of the time provided under other provisions or the relevant court or authority’s decision or judgment.
FBR empowered to regulate recovery procedures
Section 138(4) authorises the FBR to make rules governing the recovery procedure and other matters connected with the operation of the section.
The provisions establish a statutory framework for recovering outstanding income tax, ranging from property attachment and management to arrest and detention. They also prescribe specific conditions for immediate recovery of substantial tax demands that have received repeated appellate confirmation.
Taxpayers facing recovery proceedings should review the applicable notices, outstanding demands and relevant legal provisions to understand their obligations and available remedies.