PM Shehbaz Imposes Six Safeguards on Tax-Fraud Arrests

ISLAMABAD: On Monday, Prime Minister Shehbaz Sharif declared the inclusion of six critical protections in the Finance Act to curb potential abuse of arrest authority by FBR officials in tax fraud cases, addressing strong reservations expressed by legislators and business leaders.

Key Decisions and Objectives

• The Premier chaired a high-level review meeting that included the Defence, Law, Commerce, Economic Affairs, and Information Ministers, along with the FBR Chairman and senior economic officials.
• He emphasized that routine taxpayers and business figures must not face unwarranted harassment.
• Shehbaz Sharif underscored the government’s respect for the business community and insisted that only serious offenders be subject to arrest.
• A committee will be set up to recommend external oversight mechanisms to review any arrest decisions.

Six Mandatory Conditions Before Arrest

Officials are required to ensure that all the following conditions are satisfied before proceeding with arrests of CEOs, CFOs, or board members in tax fraud:

1. Evidence of the accused attempting to flee the country
2. Proof of tampering with or destroying financial records
3. Failure to respond after three official summons
4. That the fraud exceeds a specific monetary threshold
5. Proof of fraud amounting to at least PKR 50 million for officers
6. Pre-approval for arrest by a special FBR board, including private-sector representatives such as chamber of commerce delegates

All political parties in Parliament will be consulted before finalizing these provisions in the Finance Act.

Tax Collection vs. Parliamentary Check

The IMF has agreed to help FBR generate PKR 389 billion through effective enforcement of the Finance Bill 2025–26. While FBR officials want to eliminate a PKR 1 billion fraud threshold and increase imprisonment terms from 5 to 10 years, the Senate Finance Committee expressed concerns that parliamentary scrutiny might limit enforcement tools and risk breaching IMF conditions.

Financial Transparency Issues

Senator Anusha Rahman flagged a Rs. 45 billion surplus held by an agency but not credited to the national treasury, questioning why they rely on Ministry of Finance allocations rather than depositing unused funds. The committee, chaired by Senator Mandviwalla, also questioned other state entities like NADRA over similar practices.

Broader Committee Recommendations

• Senator Farooq H. Naek (PPP) recommended reducing maximum fines from PKR 10 million to 5 million, limiting jail terms to five years, mandating three warning letters before penalties, and requiring high court review of tax appeals within 60 days.
• Senator Shibli Faraz urged that anti-tax measures must not be used for political retribution.
• The committee approved new audit standards and clarified that only firms meeting international best practices should be licensed.
• Senator Anusha emphasized that small sellers (especially women and youth) on e-commerce platforms should be exempt from burdensome registration rules—regulation should focus on larger digital marketplaces.
• Senator Mohsin Aziz proposed a phased, Malaysia-style rollout of the e-billing system, urging a formal plan rather than talks.

Final Session Notes

• The panel reviewed the phasing out of GST exemptions for FATA/PATA, raising rates from 0% to 10%, then eventually 18%.
• Further discussions included revising Islamabad’s service-tax law and central excise on immovable property.
• Concerns were raised about the FBR’s possible overreach into areas reserved for provincial governments, particularly in Sindh.