Tax Lawyers Ask PM Shehbaz to Limit FBR Powers

The Multan Tax Bar Association (MTBA) has written to Prime Minister Shehbaz Sharif requesting that he limit the Federal Board of Revenue's (FBR) authority to conduct raids, inspections, and other enforcement actions in the name of tax revenue collection. The MTBA expressed concerns over an uptick in FBR field teams making visits, inspections, raids and searches, particularly as the end of a month, quarter, or budget period nears.

They emphasized that their issue is not with the lawful application of statutory powers in situations of genuine tax evasion or noncompliance, but rather with the use of these powers to secure immediate tax payments to meet revenue collection targets. The MTBA pointed to enforcement powers under sections 38 and 40 of the Sales Tax Act, 1990, and section 175 of the Income Tax Ordinance, 2001.

They noted that business representatives and their own representations indicated that some firms had experienced pressure to make immediate payments that may not have been legally required at that time. The MTBA also alleged that taxpayers were compelled to account for future sales in the current tax period or to make advance tax deposits in order to fulfill collection targets.

They argued that these practices, if proven, could transform statutory enforcement powers into instruments of revenue pressure rather than tools for investigating and collecting taxes that are actually owed. The MTBA highlighted that access, inspection, search, and examination powers can have significant impacts on businesses and should only be used based on relevant material and in accordance with legal requirements.

They further stated that the timing of an inspection, inquiry, or search ought to be dictated by the facts of the case and applicable legal obligations rather than the closing date of a revenue period. The tax bar warned that enforcement driven by targets could diminish confidence between taxpayers and the tax administration, as well as strain business liquidity and working capital.

The MTBA urged the prime minister to instruct the Finance Ministry and FBR to ensure that enforcement proceedings are not initiated or escalated solely to meet revenue targets. They also proposed that any enforcement action should be carried out to conclusion, encompassing examination of pertinent material, proceedings in line with the law, and, if appropriate, issuance of a show cause notice followed by an order, provided the taxpayer with an opportunity to present their case.

The MTBA further called for the examination of any payments purported to be voluntary during or immediately after raids, inspections, or searches. They stipulated that such payments should only be deemed voluntary if made without threat, pressure, or undue influence, and recommended a supervisory mechanism to review abnormal collections made during the final days of a quarter immediately following enforcement actions.

The MTBA also called for accountability in cases where enforcement powers may have been abused, while emphasizing their acknowledgment of the FBR's duty to combat tax evasion and collect all taxes legally owed to the state.