The amended Finance Bill 2025–26 mandates the Federal Board of Revenue (FBR) to form a three-member committee to authorise the issuance of arrest warrants in tax fraud cases where the alleged loss exceeds Rs50 million.
Under the revised Section 37A of the Sales Tax Act, 1990, arrests for tax fraud below this threshold will not be authorised by the high-powered committee. The amendment clarifies that such arrests may only proceed if the accused has ignored three summons, is attempting to flee, or is likely to tamper with evidence.
The revised law allows an Inland Revenue officer, not below the rank of assistant commissioner, to initiate an inquiry based on material evidence of tax fraud, with the Commissioner’s approval. The inquiry officer will have powers akin to those of a civil court under the Code of Civil Procedure, 1908, including summoning individuals, requiring documents, and collecting affidavits.
The inquiry must be completed within six months. The person accused of fraud must be given a hearing and presented with allegations and supporting evidence. After completing the inquiry, the officer will submit a report to the Commissioner for further action.
The Commissioner may approve a full investigation, request more information, or close the case. If the investigation proceeds, it must be completed within three months, with a final report submitted to a competent court.
In cases involving tax fraud exceeding Rs50 million under clauses (a) to (f) of Section 2(37), the Commissioner may issue an arrest warrant only after the three-member committee constituted by the FBR chairman grants authorisation. Arrests may be sought during the investigation if the accused avoids inquiry despite repeated notices, attempts to abscond, or is believed to be tampering with evidence.
For tax fraud cases under other sub-clauses, an Inland Revenue officer may request an arrest warrant from a Special Judge under similar conditions.
The law also holds directors or officers of a company accountable if they are believed to have contributed to corporate tax fraud. However, arresting individuals does not absolve the company from tax liabilities, penalties, or surcharges.
The amendment permits the Commissioner to compound offences—before or after inquiry or investigation—if the accused pays the evaded tax, default surcharge, and penalties.
Any person arrested must be informed in writing of the grounds for arrest. All arrests under the Act are to follow the procedures outlined in the Code of Criminal Procedure, 1898.
