Renowned tax expert Muhammad Zeeshan Merchant, Advocate High Court and former president of Karachi Tax Bar Association (KTBA), demystified the highly talked-about Sections 37A and 37B of the Sales Tax Act, 1990, introduced through the Finance Act, 2025.
His clear breakdown of these provisions brought much-needed clarity to the business community, which has been buzzing with concern over potential misuse of powers by tax authorities.
⚖ Understanding Sales Tax Fraud & Who’s an Abettor
Merchant explained that these sections are aimed at curbing intentional sales tax fraud, not penalizing genuine business errors. Tax fraud includes:
• Faking compliance with Section 73 by routing payments through supplier accounts.
• Suppressing taxable supplies.
• Issuing goods without sales tax invoices.
• Not depositing withheld tax for over 3 months.
• Dealing in confiscable goods (like smuggling or unauthorized sales).
• Making taxable supplies without being sales tax registered.
Anyone who intentionally abets these acts, like facilitating fake invoices or maintaining bank accounts under someone else’s name, is considered an abettor.
“Tax fraud is not a mistake — it’s a crime involving deliberate deception, and the consequences are serious,” warned Merchant.
🔍 Section 37A: Inquiry, Investigation & Arrest
This section allows tax officers to investigate major sales tax fraud — but only with checks and balances in place.
How it begins:
If credible evidence exists (e.g., fake invoices or refund fraud), an Assistant Commissioner (or higher) may initiate an inquiry after written approval from the Commissioner.
Inquiry Phase:
• Summon individuals to record statements.
• Demand financial or transactional records.
• Conclude the inquiry within 6 months.
• Accused must be given a chance to explain before any legal action.
Post-Inquiry Action:
The officer’s findings go to the Commissioner, who can either:
• Approve further investigation,
• Request additional documents, or
• Close the case if evidence is lacking.
🚨 When Can Arrest Happen?
According to Merchant, arrest under sales tax law is an extreme measure, only permitted if:
• Fraud exceeds Rs. 50 million.
• The accused ignores 3 official notices, tries to abscond, or tampers with evidence.
• FBR’s 3-member Committee approves the arrest, or a Special Judge issues a warrant.
🛡 Section 37B: Legal Protection After Arrest
If an arrest is made:
• The accused must be presented before a judge within 24 hours.
• Court decides on bail, judicial remand, or FBR custody (maximum 14 days).
• Investigation continues under judicial supervision.
• Only a Magistrate can record any confessions.
🧾 Key Takeaways for Merchants & Businesses
| Concern | Protection Under Law |
| Can FBR arrest at will? | No, strict legal process applies |
| Is arrest automatic? | No, requires approval or court warrant |
| Can bail be granted? | Yes, through court as per CrPC |
| Can arrest be avoided? | Yes, by responding to notices promptly |
| Is sales tax compliance optional? | No, it’s mandatory for all taxable supplies |
✅ Merchant’s Final Word: Stay Smart, Stay Compliant
Merchant concluded with a simple message: “These sections are about deterrence, not harassment. If you’re compliant, keep records, and respond to notices, you have nothing to fear.”
Businesses are strongly advised to understand their sales tax obligations, cooperate with authorities, and seek legal advice where needed. With proper documentation and awareness, even the most complex sales tax law can be navigated with confidence.