FBR Arrest Powers Tied to Consultation with Business Representatives

The federal government has made it mandatory for tax officials to consult at least two business representatives before starting investigations that could lead to arrests. This move limits the Federal Board of Revenue’s (FBR) ability to arrest accused individuals under its arrest powers.

According to a new Sales Tax General Order, the commissioner inland revenue must get approval from the member (inland revenue operations) of the board before starting an investigation. However, the commissioner cannot seek approval without first convincing the business community that fraud occurred and that an arrest is necessary.

The order states, “before seeking approval of the member inland revenue operations, it is binding upon the commissioner to consult with two representatives of the business community notified by the board.”

This requirement creates a major hurdle for arresting individuals in sales tax fraud cases.

Dilution of Enforcement Powers Raises Concerns

Experts say this lengthy process makes it almost impossible for the FBR to fully exercise its arrest powers. The government had initially granted these powers through the budget to raise Rs389 billion via enforcement. These powers included arresting tax defaulters and restricting major purchases like cars and homes.

The Pakistan Peoples Party (PPP) initially opposed the arrest powers, equating them to those of the National Accountability Bureau (NAB). However, PPP later compromised after the government inserted safeguards addressing its concerns. Subsequent government notifications further weakened the FBR’s enforcement authority, especially against traders.

Salaried Class Disadvantaged by Leniency

This leniency toward traders creates an imbalance. Salaried individuals paid Rs555 billion in income tax last fiscal year. Yet, there are no reliable figures for the income tax paid by traders.

With FBR arrest powers now tied to consultations with business representatives, a suggestion originally brought forth by the Senate Standing Committee on Finance and Revenue, many fear the agency will struggle to act decisively against tax evasion.