FBR limits Inland Revenue officials' arrest powers in sales tax fraud cases

Pakistan's tax collection authority—the Federal Board of Revenue (FBR)—has limited Inland Revenue officials' arrest powers, now requiring them to obtain an arrest warrant from a judge in sales tax fraud cases.

Through a sales tax explanatory circular issued on Monday, the FBR clarified to the business community that officials may obtain a temporary arrest warrant from a judge under subsection (9) of section 37A of the Sales Tax Act in cases of fraud related to fake and flying invoices.

Under this subsection, the following pre-conditions shall also apply as is the case of arrest under subsection (8) of section 37A:

1. The accused may tamper with documents.
2. The accused may abscond.
3. The accused does not help investigations despite three served notices.

The FBR will separately notify the detailed procedure, preconditions and restrictions through a sales tax general order (STGO) for the smooth operation of subsections (8) and (9) of section 37A of the Sales Tax Act, according to the circular.

A new subsection (4) in section 37 has been inserted to empower the lnland Revenue officials to exercise the powers of civil court under the Code of Civil Procedure, 1908.

The FBR has also separated criminal and civil liability to differentiate between non-compliance and fraudulent activities. Subsection (1) of section 11E has been substituted whereby non-payment of tax through collusion or deliberate act are excluded from its scope because the provisions of law already exist in this Act under section 37A for initiation of criminal proceedings in such non-payments.

Similarly, the provisions of section 11E shall not be applicable to the extent where proceedings have been initiated under section 37A. This differential between proceedings under section 11E and section 37A is important as the former deals with non-compliance whereas latter deals with the fraudulent activities.