The Federal Board of Revenue has issued fresh operational instructions directing its field formations to immediately refer cases involving suspected sales tax fraud to the Directorate of Intelligence and Investigation (Inland Revenue). The directive applies to cases detected during assessments of sales tax, audit procedures, verification of wrongly issued refunds, and recovery proceedings related to unpaid sales tax.
The new guidance aims to introduce a structured enforcement process under the Sales Tax Act, 1990, particularly under Section 37A of the legislation. The tax authority has emphasized that the directive is intended to ensure that investigations into tax fraud are conducted through a standardized mechanism capable of sustaining scrutiny at appellate forums and legal proceedings.
According to the instructions circulated by the tax authority, Section 37A of the Sales Tax Act empowers authorized officers to conduct inquiries and investigations into suspected tax fraud or offences under the Act. The provision grants these officers powers equivalent to those exercised by civil courts under the Code of Civil Procedure, 1908 in specific matters outlined in clauses (a) and (b) of sub-section (2) of Section 37A.
In addition to investigative authority, the provision also enables officers to carry out arrests where required, as described under sub-sections (8) and (9) of Section 37A of the Act. These powers provide enforcement authorities with a broad legal framework to investigate complex tax fraud schemes and take action where violations are identified.
The Federal Board of Revenue stated that it has become necessary to formalize procedures governing how such powers are exercised. By issuing a defined Standard Operating Procedure (SOP), the authority intends to ensure consistency across its field formations and prevent procedural weaknesses that could undermine cases during legal appeals.
Under the newly introduced SOP, when field officers encounter material evidence indicating the commission of tax fraud during proceedings under Section 11E of the Sales Tax Act or during any related verification process, the matter must be immediately referred to the Directorate of Intelligence and Investigation (Inland Revenue). The referral must specifically address the suspected elements of tax fraud identified during the proceedings.
Once a case is referred by the field formation, the concerned Director of Intelligence and Investigation (Inland Revenue) will review the matter to determine whether formal action should be initiated under Section 37A(1) of the Act. The directive specifies that this scrutiny must be completed within thirty days of receiving the referral.
Following the review process, two possible outcomes may occur. If the director determines that action under Section 37A is justified, the concerned Commissioner will be formally notified and the investigative process will move forward. However, if the director concludes that the evidence does not justify proceedings under the relevant section, the case will be returned to the originating jurisdiction for completion of proceedings under Section 11E.
The SOP further outlines the procedural steps following the inquiry stage. After an inquiry is conducted under sub-section (3) of Section 37A and the relevant report is submitted to the Director under Section 37(5) of the Act, the Directorate General of Intelligence and Investigation (Inland Revenue) will determine whether a full investigation should proceed under Section 37A(6).
If such an investigation is considered necessary, authorities will follow the framework established under Sales Tax General Order No. 2 of 2025. The order provides detailed operational guidelines for conducting investigations, gathering evidence, and ensuring that enforcement actions remain compliant with legal standards.
Through these measures, the Federal Board of Revenue is seeking to strengthen enforcement against tax fraud and ensure that suspected violations are handled through a coordinated investigative structure. The move also reflects broader efforts to improve tax compliance and reinforce the legal mechanisms available to authorities responsible for monitoring Pakistan’s sales tax system.
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