The Karachi Chamber of Commerce and Industry (KCCI) has raised a strong alarm against the Federal Board of Revenue’s (FBR) sweeping new powers outlined in the Financial Budget 2025-26. During a recent meeting with the Senate Standing Committee on Finance and Revenue, chaired by Senator Saleem Mandviwalla, the KCCI firmly stated that the business community will not tolerate the FBR acting as the “judge, jury, and executioner” of taxpayers. This bold stance underscores growing concerns about the potential misuse of authority, which could stifle legitimate businesses, drive investments abroad, and harm Pakistan’s Ease of Doing Business Index.
Concerns Over FBR’s Arrest Powers
The Senate Standing Committee convened to discuss anomalies in the Financial Budget 2025-26, with a particular focus on clauses granting the FBR unprecedented authority. One of the most contentious issues highlighted by KCCI President Muhammad Jawed Bilwani was Section 37A of the Sales Tax Act, 1990. This section empowers Inland Revenue officers to arrest directors, CEOs, CFOs, and others suspected of tax fraud. Bilwani warned that such broad powers risk severe misuse, potentially leading to harassment and corruption on an unprecedented scale.
The KCCI argues that allowing the FBR to unilaterally arrest individuals based on suspicion undermines the principles of a democratic society, where the judiciary is tasked with protecting citizens’ rights. “We cannot allow the FBR to be the judge, jury, and executioner of taxpayers,” Bilwani emphasized during his presentation. He cautioned that such measures could force legitimate businesses to shut down and prompt investors to move their capital abroad, further weakening Pakistan’s economic landscape.
Vague Definition of Tax FraudA
key point of contention is the vague and overly broad definition of “tax fraud” in the budget. Bilwani stressed that this ambiguity creates significant apprehension among businesses, as it could be exploited to target legitimate taxpayers. To address this, the KCCI proposed restricting the definition of tax fraud to specific offenses, such as the issuance of fake or flying invoices. By narrowing the scope, the FBR could focus on genuine tax evasion without casting a wide net that risks ensnaring honest businesses.This recommendation aligns with the business community’s call for clarity and fairness in tax laws. A more precise definition would not only reduce the potential for abuse but also rebuild trust between taxpayers and the FBR, fostering a more cooperative tax environment.
Section 14AE: Forcing Sales Tax Registration
Another alarming provision in the Financial Budget 2025-26 is Section 14AE, which grants the FBR extensive powers to compel taxpayers to register for sales tax. Bilwani described these powers as “scary” and argued that they could deter potential filers from entering the sales tax regime. The KCCI urged the FBR to adopt a softer stance and curtail these powers to make the process less intimidating for businesses.The current approach, according to Bilwani, resembles a “carrot and stick” tactic that is unlikely to encourage compliance. Instead, it may alienate businesses, particularly small and medium-sized enterprises (SMEs), which form the backbone of Pakistan’s economy. The KCCI called for a more reasonable and inclusive approach to sales tax registration, one that balances enforcement with encouragement.
E-Bilty and Digital Invoicing Concerns
The KCCI also raised concerns about Section 40C, which mandates the use of e-bilty for the local transfer of goods within Pakistan. Bilwani argued that this requirement places an unnecessary burden on businesses, particularly those operating domestically. The KCCI recommended removing e-bilty from the act to streamline local operations and reduce compliance costs.
The KCCI advocated for a phased implementation of digital invoicing to ease the transition for businesses. Bilwani proposed starting with multinational corporations and public limited companies with turnovers exceeding Rs10 billion, then gradually extending the requirement to medium and small taxpayers based on their turnover. This gradual approach would allow businesses to adapt to the new system without facing immediate financial or operational strain.
The KCCI highlighted the need for a cost-free digital invoicing system.
Currently, only one FBR-certified integrator is free, while others charge fees, creating an uneven playing field. A fully free system would ensure equitable access and encourage broader adoption among taxpayers.
Potential Economic Fallout
The KCCI’s concerns are not limited to specific clauses but extend to the broader economic implications of the FBR’s new powers. Bilwani warned that unchecked authority could lead to a decline in Pakistan’s Ease of Doing Business Index, a critical metric for attracting foreign investment. If legitimate businesses face harassment or closure due to overzealous enforcement, investors may seek more business-friendly environments abroad, further straining Pakistan’s economy.The KCCI’s presentation underscored the need for a balanced approach that targets tax evasion without penalizing compliant businesses. By addressing these anomalies, the government can create a tax regime that supports economic growth while maintaining fairness and transparency.
Senate Committee’s Role
The Senate Standing Committee on Finance and Revenue, under Senator Mandviwalla’s leadership, plays a crucial role in addressing these concerns. The committee’s willingness to engage with the business community demonstrates a commitment to refining the Financial Budget 2025-26. By incorporating feedback from the KCCI and other stakeholders, the committee can help craft policies that promote compliance without stifling economic activity.
