By ABDULLAH 
In a landmark move that marks a shift in Pakistan’s tax enforcement landscape, the Federal Board of Revenue (FBR) has officially curtailed its powers to arrest businessmen suspected of tax fraud—without prior consultation with the business community. This decision, formalized under Sales Tax General Order (STGO) No. 2 of 2025, introduces a rigorous consultation process before any action can be taken.
The newly issued guidelines lay out a structured multi-layered process for investigation and arrest under the Sales Tax Act, 1990 (Section 37A, sub-sections 8 & 9):
- Initial Approval: No inquiry can begin without prior approval from the relevant Commissioner Inland Revenue.
- Layered Authorization: Even after an inquiry concludes, the Commissioner cannot proceed with an arrest without approval from the Member Inland Revenue Operations (MIRO).
- Mandatory Consultation: Before seeking MIRO’s approval, the Commissioner must consult at least two business community representatives, nominated by recognized trade organizations.
- Representative Selection Criteria: These representatives must be tax-compliant, significant contributors to the economy, and vetted based on their recent income tax filings, export activity, and compliance history.
To ensure fair representation, a wide network of trade bodies will submit nominations for regional representatives. These include:
- Pakistan Business Council
- Federation of Pakistan Chambers of Commerce & Industry (FPCCI)
- Karachi, Lahore, Islamabad, and Rawalpindi Chambers of Commerce
- All Pakistan Textile Mills Association (APTMA)
- Chambers from Faisalabad, Multan, Gujranwala, Sialkot, Quetta, Hyderabad, and Sarhad
- Overseas Investors Chamber of Commerce & Industry
Each body can nominate two representatives per region, but FBR will not select more than one individual from a single organization in a given region. This is to avoid bias and ensure broader input from diverse sectors.
The change is seen as a rollback of recent enforcement powers granted to the FBR during the budget session. Originally, the FBR had been given authority to:
- Arrest tax evaders directly
- Restrict major purchases (cars, homes, plots) by non-filers
- Penalize undocumented cash transactions above Rs200,000
However, following strong resistance from the business community—backed by the Pakistan Peoples Party (PPP)—the government was forced to include safeguards and consultative processes. PPP initially likened the arrest powers to those of the National Accountability Bureau (NAB) and refused to support the move until revisions were made.
While business groups have welcomed the rollback as a win for due process, critics argue that the salaried class remains burdened. For example, salaried individuals contributed a record Rs555 billion in taxes last fiscal year—while data for traders remains unclear due to lack of verifiable income tax submissions.
This perceived imbalance in enforcement has sparked criticism from policy analysts who claim that the government has once again bent to pressure from traders, undermining its own fiscal goals.
Interestingly, these reforms come amidst criticism from international partners like the International Monetary Fund (IMF), which recently exposed corruption and inefficiencies within the FBR. The rollback of enforcement measures is likely to raise eyebrows in policy circles, especially as the government struggles to meet revenue targets.
Other related reversals include:
- Allowing cash deposits as valid payments (when backed by invoices)
- Suspending the ban on luxury purchases by non-filers
- Delaying implementation of asset-related tax restrictions
The new procedures are being seen as both a win for transparency and a challenge for enforcement. While they aim to protect honest businesses from arbitrary action, they may also slow down efforts to clamp down on real tax evasion.
Tax experts caution that unless the FBR develops faster, more data-driven systems for verifying fraud, the new consultation model might become a bureaucratic bottleneck—effectively making arrests nearly impossible.
The FBR’s revised powers signal a new era of cooperation between the state and the business community, but not without trade-offs. While it’s a move toward participatory governance and protection against abuse, it also raises questions about the government’s resolve to tackle tax evasion, especially in a time of economic difficulty.
For now, Pakistan’s business landscape awaits clarity—as the balance between enforcement and consultation continues to evolve.