Senate Rejects FBR Arrest Powers in Sales Tax Fraud Cases

ISLAMABAD: The Senate Standing Committee on Finance and Revenue has rejected the Federal Board of Revenue’s (FBR) proposal to expand its arrest powers in cases of sales tax fraud, urging stronger legal oversight before such authority is granted.

Chaired by Senator Saleem Mandviwalla, the committee reviewed budget proposals and firmly opposed the clause allowing FBR to arrest individuals at the investigation stage without prior court approval.

Under current laws, FBR officials may arrest during the inquiry phase. However, the Finance Bill 2025-26 included an amendment to extend FBR arrest powers to the investigation stage following inquiry. The committee blocked the proposal, stating that any arrest should be sanctioned by the courts.

FBR Chairman Rashid Mahmood Langrial defended the proposal by highlighting tax fraud cases involving influential individuals, including a former senator, and a Pakistan Customs official who allegedly coached a shoe company in evading millions in sales tax.

Despite the evidence, Senator Farooq H. Naek emphasized that Parliament had already removed similar unchecked powers from NAB and could not allow FBR to operate without judicial restraint. He insisted that courts alone must authorize arrests in tax fraud cases.

Legal Oversight and Committee Concerns

Senator Abdul Qadir noted that while NAB has arrest powers during investigations, it typically requires statements from approvers to proceed. Langrial responded that tax fraud of Rs1 billion or more should justify arrest. Still, Naek maintained that even such cases need court approval.

Special Assistant to the Prime Minister on Finance Bilal Azhar Kiyani clarified that the amendment was designed to curb the current “draconian powers” held by assistant commissioners, proposing that only Commissioners of Inland Revenue would approve arrests under the new rule.

While opposing expanded FBR arrest powers, the committee approved stricter jail terms: five years for fraud under Rs1 billion and ten years for cases exceeding Rs1 billion.

The committee also allowed FBR to take action against unregistered businesses, including freezing accounts, sealing premises, and seizing assets — but only after holding public hearings with tax officials and business representatives.

The matter has been referred back to FBR for revision in consultation with the Finance Minister and Attorney General.