ISLAMABAD: The Federal Board of Revenue (FBR) has introduced a new Standard Operating Procedure (SOP) outlining the process for inquiries, investigations, prosecutions, and arrests in sales tax fraud cases under Section 37A of the Sales Tax Act 1990.
The new framework aims to ensure transparency and a structured approach when authorities initiate criminal proceedings related to tax fraud during assessment proceedings.
According to officials, the SOP has been issued by the Inland Revenue (Operations) Wing of the FBR and communicated to field formations as well as the Directorate General of Intelligence and Investigation Inland Revenue.
Under the updated procedure:
• Criminal prosecution in sales tax fraud cases will now be handled exclusively by the Directorate General of Intelligence and Investigation Inland Revenue.
• The FBR’s Operations Wing will no longer directly process criminal prosecutions under Section 37A.
• Cases identified by field formations will be forwarded to the Directorate General for further investigation and legal action.
• Authorities must follow procedures defined under the Finance Act 2025 and related notifications and circulars.
Officials said the revised mechanism is designed to streamline investigations and ensure proper legal compliance before initiating arrests in tax fraud matters.
Separation of Civil and Criminal Liability
A major aspect of the revised procedure is the clear separation of civil and criminal liability.
Authorities explained that civil tax liability must first be established against a taxpayer before criminal proceedings can begin. This change follows court directives aimed at protecting taxpayers from premature prosecution.
Once the civil liability is determined, the case may proceed to criminal investigation if evidence suggests deliberate tax fraud.
Concerns of the Business Community
The recent amendments to Section 37A introduced through the Finance Act have triggered concerns among trade bodies and the wider business community, particularly regarding the possibility of misuse of arrest powers.
Officials clarified that the newly issued SOP does not override existing consultative mechanisms involving committees that represent trade and business organizations. Authorities emphasized that the procedure remains consistent with previously established safeguards.
While businesses traditionally prefer dealing with local FBR field offices, officials acknowledged that many in the business community are less comfortable appearing before the Directorate General of Intelligence and Investigation Inland Revenue.
Government Assurances on Safeguards
Following discussions with trade organizations when the law was amended, the government assured stakeholders that safeguards would be implemented to prevent any potential abuse of authority.
The newly introduced SOP is part of these efforts to ensure that tax fraud investigations follow a transparent legal process, balancing enforcement with the protection of taxpayer rights.
Experts believe the move could help strengthen the government’s crackdown on tax evasion while maintaining due process in criminal proceedings related to sales tax fraud.
