Karachi, February 19, 2024 – The Federal Board of Revenue (FBR) has tightened its grip on tax recovery procedures, mandating that its offices obtain prior approval for accessing taxpayers’ bank accounts.
This development follows an order from the Islamabad High Court (IHC), which cited a breach of its earlier ruling as the reason for the new restrictions.
Under the recent directives issued by the FBR, field formations are now barred from initiating recovery actions under Section 140 of the Income Tax Ordinance 2001 without obtaining prior approval from a committee presided over by the Chief Commissioner Inland Revenue. This committee, composed of two senior commissioners, will meticulously review each case before granting approval for attaching bank accounts as part of tax recovery measures.
These stringent directives supersede the more lenient instructions issued in October 2021 and October 2022, signaling a departure from the previously eased restrictions on tax recovery measures.
The genesis of these new regulations can be traced back to the Islamabad High Court’s scrutiny of the FBR’s persistent violations of its 2016 order in the Pakistan LNG case. The court had previously issued a restraining order against the FBR, curbing its use of coercive means for tax recovery. In response to the court’s observations, the FBR has now implemented measures requiring field officers to refrain from taking any recovery action when restraining orders are issued by the Supreme Court, High Courts, or appellate forums, such as the Appellate Tribunal Inland Revenue.
To further safeguard taxpayers’ interests, notices under Section 138(1) will be mandatory in all cases before the initiation of action under Section 140. Taxpayers will be granted a seven-day window for voluntary tax payment following the receipt of such notices.
In a bid to exercise prudence in legal proceedings, the FBR has directed Chief Commissioners to carefully consider the filing of appeals and references before higher courts. The directive specifies that such actions should be pursued only in cases where a substantial question of law is involved.
While the FBR contends that these measures are intended to prevent the harassment of taxpayers through arbitrary tax recovery procedures, the true impact of these directives remains to be seen. As the tax landscape evolves, it is imperative to monitor how these regulations shape the interactions between the FBR and taxpayers, and whether they strike the delicate balance between revenue collection and protecting the rights of those subject to taxation.
