The International Monetary Fund (IMF) has placed a major new condition before the Pakistani government, demanding the registration of at least 50,000 traders as a prerequisite for rolling back the 4% additional sales tax imposed on supplies to unregistered persons.
The demand came to light during a Senate Standing Committee on Finance meeting chaired by Senator Saleem Mandviwala, where senior officials from the Federal Board of Revenue (FBR) and the Ministry of Finance briefed lawmakers and responded to concerns raised by the business community.
FBR tightens tax compliance measures
FBR Member Dr. Hamid Ateeq Sarwar revealed that out of 200,000 registered sales tax filers, only 60,000 actually pay taxes, including 30,000 manufacturers. He emphasized that sales tax compliance is restricted to a fraction of the trading community, while Pakistan has over 380,000 industrial and five million commercial electricity connections, suggesting large-scale underreporting.
To boost compliance, daily digital invoice reporting to FBR will be made mandatory for traders, and all sales exceeding Rs200,000 must be conducted via banking channels. “If further tax relief is desired, especially on the additional 4% sales tax, traders must first register with the FBR,” Dr. Sarwar stressed.
He urged business organizations not to obstruct the registration process and to play a cooperative role in implementing reforms.
FBR foiled Rs2.2 trillion tax fraud
In a startling disclosure, Dr. Hamid Ateeq Sarwar revealed that the FBR foiled tax fraud attempts worth Rs2,210 billion in the last two fiscal years — Rs837 billion last year and Rs1,373 billion the year before. These frauds mostly involved fake and flying invoices, with multiple individuals already behind bars.
“Many people involved in these scams are in jail. We can arrange meetings if needed,” he said, adding that several FBR officers and staff have also been dismissed for their involvement. “Such a high number of terminations and suspensions has never happened in FBR's history.”
Arrest law sparks controversy
The business community, including the Karachi Chamber of Commerce, raised strong objections over the recent Finance Bill's arrest provisions, fearing misuse of power. The Senate Standing Committee recommended that no person be arrested merely on suspicion of tax fraud.
Dr. Sarwar assured lawmakers that no arrests would be made without concrete evidence, and action would be taken against FBR officers found misusing their authority. “Even I can be suspended if I cross the line,” he said, adding that all the concerns and suspicions would be solved in consultation with the business and trading community. He assured the businessmen that the purpose of the law was only to catch people involved in fake and flying invoices.
Officials confirmed that arrests can only occur after a judge’s warrant or approval from a three-member government committee, and only if tax fraud is proven. The FBR official says several safeguards had been added to the law in consultation with parliament.
The committee chairman stressed that in case of misuse of the law or complaints, the finance minister would be summoned and the law could also be amended in that case. "It would not be appropriate to make amendments at this stage." he remarked.
Govt assures traders
Minister of State for Finance Bilal Azhar Kayani reiterated the government's commitment to protecting law-abiding taxpayers. “The Finance Bill passed by parliament should be implemented. The prime minister has clearly instructed that no taxpayer should be harassed. Harassment will not be tolerated under any circumstances,” he said.
He told the members that discussions were underway with business organizations on the arrest law, clarifying that no arrests would be made at the inquiry stage. “The goal is not to target businessmen, but to catch those abusing the system through fake receipts,” said Dr. Sarwar.
The FBR member says a clarifying circular is expected to be issued soon to address the business community’s reservations. However, the government ruled out immediate amendments to the new arrest law.
Senator Mohsin Aziz called for future amendments to prevent misuse, while Saleem Mandviwala emphasized the importance of implementing the law while safeguarding against abuse.
