June 10, 2025 — Islamabad: In a significant retreat prompted by nationwide backlash, the federal government has rolled back controversial proposals to empower the Federal Board of Revenue (FBR) with unilateral arrest authority over business executives suspected of tax fraud.
The changes were announced during a meeting of the National Assembly Standing Committee on Finance, where Finance Minister Muhammad Aurangzeb confirmed that Prime Minister Shehbaz Sharif had personally intervened to limit potential abuse of power and reduce taxpayer harassment.
Why the Backlash?
The initial budget proposal for FY2025 included a clause allowing FBR officials to arrest individuals without warrants in income tax fraud cases. This alarmed business leaders, legal experts, and civil society, who feared it would lead to institutional overreach and corruption.
Critics likened the move to the creation of “another NAB” — referencing the National Accountability Bureau — and called it a violation of legal due process.
“The FBR is getting under the skin of the industry. These powers will lead to harassment and open new mines of corruption,” said MNA Nafisa Shah.
Revised Arrest Powers: New Safeguards Introduced
To address concerns, Finance Minister Aurangzeb and FBR Chairman Rashid Langrial outlined new safeguards that would dramatically scale back the originally proposed arrest powers:
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No arrest without approval from a special three-member FBR board
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Arrests only in high-value tax fraud cases, likely involving sums above Rs50 million
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Arrests permitted only if:
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The accused attempts to flee the country
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The individual ignores three official notices
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There is evidence tampering
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This marks a pivot from field-level arrest powers to centralized oversight, which many in the business community see as a win for institutional checks and balances.
Cash-on-Delivery Tax Also Simplified
The federal government also revised another controversial budget measure: the introduction of 0.25% to 2% income tax on cash-on-delivery (COD) transactions.
State Minister for Finance Bilal Azhar Kayani confirmed that:
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Separate tax rates will apply for cash vs. digital payments
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Higher rates will be levied on cash transactions to discourage the informal economy
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The move is expected to raise Rs59 billion in tax revenues
This development reflects Pakistan’s ongoing push for digitalization of financial transactions and reduced reliance on cash.
Resistance to Expanded FBR Powers Over Banks and Businesses
Despite the revisions, the Standing Committee on Finance pushed back on other proposed expansions of FBR authority under Sections 175A and 175C:
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Section 175A: would allow the FBR to share taxpayer information with commercial banks
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Section 175C: would allow tax officials to enter business premises without judicial oversight
Chairman Syed Naveed Qamar and other MNAs rejected these clauses, arguing they were invasive, vulnerable to abuse, and unnecessary for effective tax enforcement.
“Unfortunately, your department has a very bad reputation,” said Qamar, urging restraint.
FBR Chairman Pledges Institutional Reform
In a moment of unexpected candor, FBR Chairman Rashid Langrial acknowledged the corruption issues plaguing the institution. He made a bold public promise:
“From July 1, 90% of people working in key field offices won’t be corrupt. If that doesn’t happen, I will leave this job.”
Langrial also reiterated that NPOs (Non-Profit Organizations) would now be required to file tax returns to claim tax credits — a new IMF-imposed condition aimed at transparency.
Ongoing Negotiations with IMF
The FBR is in talks with the International Monetary Fund (IMF) to retain a 25% income tax rebate for teachers and researchers. The IMF is reportedly resistant to extending the benefit beyond June 2025.
The government is also tightening rules on tax credit eligibility and subjecting NPOs to stricter scrutiny, aligning with broader fiscal targets under the IMF Extended Fund Facility (EFF).
Conclusion: A Rare Victory for Civic Pressure
This swift policy reversal underscores the growing power of public feedback and parliamentary oversight in Pakistan’s fiscal policymaking. It also highlights a difficult balancing act between:
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IMF conditionalities
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Revenue generation goals
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Protection of civil liberties and business freedoms
Whether these revisions translate into genuine reform within the FBR — long criticized for corruption and inefficiency — will depend on institutional will and sustained political scrutiny in the months ahead.