The Federal Board of Revenue (FBR) has addressed concerns from the business community by clarifying that arrest warrants will only be sought from a judge in cases of serious sales tax fraud, specifically those involving fake or “flying invoices.” This clarification follows a meeting between leading businesspersons and Army Chief Field Marshal Asim Munir, where apprehensions were raised about the arrest powers granted under the Finance Act 2025.
To alleviate these concerns, the Special Investment Facilitation Council (SIFC) decided to issue an explanatory circular. In its circular on Monday, the FBR stated that warrants under subsection (9) of section 37A will be pursued primarily in serious sales tax fraud cases. The circular outlines specific preconditions for issuing such warrants, including scenarios where the accused might tamper with evidence, attempt to abscond, or fail to cooperate after being served three notices. The FBR also assured that it will issue a separate Sales Tax General Order (STGO) to detail the procedures and restrictions, emphasizing that multiple approvals at both the inquiry and investigation stages will serve as safeguards against misuse. The circular clarifies that the purpose of prosecution is to deter fraud, not to recover revenue.
In other key legislative changes, the FBR announced the withdrawal of the Federal Excise Duty (FED) on the allotment and transfer of immovable property, which had been imposed through the Finance Act 2024.
Additionally, the FBR issued an explanatory circular on Income Tax, introducing new clauses under Section 21 of the Income Tax Ordinance, 2001. A new clause (q) disallows 10% of expenditures on purchases from suppliers without a National Tax Number (NTN) to encourage formal sector growth, with some exceptions for agricultural produce. Another new clause (s) stipulates that if a single invoice sale of Rs200,000 or more is not paid through banking or digital channels, 50% of the proportional business expenditure will be disallowed; however, cash deposited into a seller’s bank account will be treated as a valid banking channel payment.
Furthermore, amendments to Section 22 state that depreciation expenses for capital assets will be inadmissible if withholding tax obligations were not fulfilled during their acquisition. The unpaid tax amount will also be excluded from the asset’s cost for depreciation calculations in the relevant tax year.
