FBR will only pursue arrest warrants for cases that involve falsified flying invoices.
Article Title: New Preconditions for Arrest Warrants in Sales Tax Fraud Cases Announced by FBR
The Federal Board of Revenue (FBR) has outlined specific preconditions for seeking arrest warrants in cases of sales tax fraud under Section 37A of the Finance Act 2025 in Pakistan. These measures aim to restrict arrest powers to serious frauds and incorporate safeguards to prevent abuse of authority.
Firstly, the tax fraud alleged must exceed Rs50 million, triggering the enhanced enforcement regime under Section 37A. The fraud must fall under defined categories, including the use or creation of false, forged, or fictitious documents, claims for input tax credit based on non-existent transactions, issuing invoices without actual supply of goods, destruction of material evidence or mandatory records, manipulation of the tax system, misuse of Section 73 of the Sales Tax Act, and other specified offences.
A three-member committee appointed by the FBR chairman will approve the issuance of arrest warrants. The investigation must be completed within three months, and the findings submitted to the Special Judge for prosecution. The warrant of arrest can only be issued after investigation approval by this committee.
The specific preconditions include a demonstrable risk that the accused might tamper with evidence, abscond, or fail to cooperate despite being served three notices. The Commissioner has the authority to allow compounding of the offence (avoid prosecution) if the accused pays evaded tax plus surcharge and penalties, but such compounding does not apply to non-resident individuals or public companies except in certain high-value cases.
Sufficient measures have been taken to prevent misuse of the arrest warrant process, requiring multiple approvals at both the inquiry and investigation stages. The FBR has assured that a separate Sales Tax General Order (STGO) will be issued to detail the procedures, preconditions, and restrictions for the smooth implementation of subsections (8) and (9) of section 37A.
The FBR's decision to only seek arrest warrants in cases of sales tax fraud involving fake or flying invoices was reported by The News on Tuesday. Another new clause stipulates that if a sale of Rs200,000 or more is made via a single invoice and payment is not received through banking or digital channels, 50% of the proportionate business expenditure will be disallowed.
It is important to note that the purpose of prosecution under the amended section 37B is not revenue recovery but to deter Sales Tax fraud. The Federal Excise Duty (FED) on the allotment and transfer of immovable property has been withdrawn.
These measures are a result of discussions at a high-level meeting of the Special Investment Facilitation Council (SIFC) and follow apprehensions raised by Pakistan's leading businesspersons regarding the arrest powers granted under the Finance Act 2025. The FBR has issued an explanatory circular to allay concerns raised by the business community.
In summary, arrest warrants under Section 37A require large-scale fraud exceeding Rs50 million involving false documentation or input tax manipulation, approval by a designated FBR committee, investigation within three months, and a justified risk of evidence tampering, absconding, or non-cooperation.
- The new preconditions for arrest warrants in sales tax fraud cases, as outlined by the FBR under Section 37A of the Finance Act 2025, aim to prevent abuse of authority and focus on serious frauds.
- The investigative process for sales tax fraud cases requiring arrest warrants involves multiple approvals, with a three-member committee approving the issuance of warrants, and the investigation must be completed within three months.
- The FBR has issued an explanatory circular to address apprehensions raised by Pakistan's leading businesspersons, clarifying that the purpose of prosecution under the amended section 37B is not revenue recovery but to deter Sales Tax fraud.
- In sales tax fraud cases, a new clause stipulates that if a sale of Rs200,000 or more is made via a single invoice and payment is not received through banking or digital channels, 50% of the proportionate business expenditure will be disallowed, according to a report by The News.
