The federal government on Saturday promulgated the “Tax Laws (Amendment) Ordinance, 2025,” introducing significant changes aimed at expediting tax recovery processes. The new law grants considerably enhanced powers to the Federal Board of Revenue (FBR) to undertake immediate recovery actions from taxpayers’ bank accounts or other movable/immovable properties, and even seal business premises, following decisions from the High Courts or the Supreme Court of Pakistan, potentially bypassing further notices.
Enhanced Recovery Powers
Under the newly promulgated Ordinance, the powers of FBR officials for the recovery of tax dues have been substantially increased. A tax expert explained that tax would now become immediately payable once an issue is decided by a High Court or the Supreme Court, effectively overriding any timeline stipulated by other laws or previous court judgments. The Ordinance specifically amends Section 138, concerning recovery of tax out of property and through arrest, and Section 140, dealing with recovery of tax from persons holding money on behalf of a taxpayer, within the Income Tax Ordinance, 2001.
According to experts, one consequence of these amendments is that courts and tribunals, when ruling against a taxpayer on a tax matter, may be restricted from suspending recovery proceedings to allow the taxpayer time to file an appeal without facing coercive recovery measures by the department. A more significant effect highlighted is that tax assessed against a taxpayer shall be immediately recoverable, or recoverable upon the expiry of the time specified in a notice issued under the amended Section 138 or 140, notwithstanding anything contained in other provisions of the Ordinance (like Section 137) or judgments of any court or tribunal, citing the example of the Pakistan LNG judgment by the Islamabad High Court (IHC).
Monitoring at Business Premises
The Ordinance has also introduced Section 175C in the Income Tax Ordinance, 2001, empowering the Federal Board of Revenue or the Chief Commissioner to depute tax officials to the premises of any person or class of persons. These officials will be authorized to monitor production, supply of goods or rendering of services, and the stock of unsold goods at any given time, subject to such conditions and restrictions as deemed fit.
Changes to Federal Excise Act
Amendments have also been made to the Federal Excise Act, 2005, through the Tax Laws (Amendment) Ordinance, 2025. These changes, without prejudice to existing provisions, allow the Board to authorize any officer or employee of the Federal or Provincial Government to exercise the powers and perform the functions of an Officer of Inland Revenue under Section 26 and sub-section (1) of Section 27, particularly concerning goods subject to monitoring under Section 45A of the Act and counterfeited goods. This includes offences related to non-affixation or use of counterfeit tax stamps, barcodes, or labels, and broadens enforcement scope.
Rationale Behind the Ordinance
Tax experts suggest that the Ordinance has been promulgated by the federal government primarily to expedite the recovery of direct taxes in cases where High Courts and the Supreme Court have decided against the taxpayer. This is seen as a legal measure to address judgments like the Islamabad High Court ruling in the case of Pakistan LNG Limited v. FOP (W.P. No. 2622 of 2022), which was perceived as creating hurdles in swift recovery. Experts also noted that the Ordinance appears to address difficulties faced by the FBR in recovering a significant amount, reportedly over Rs 5-6 billion in principal, recently decided against a telecommunication company (Income Tax Reference No. 1 of 2024, decided on 28-04-2025), where the Pakistan LNG judgment had reportedly posed an impediment to recovery.
Sweeping Powers Draw Criticism
The new amendments have ignited significant controversy across legal and tax circles. Senior tax lawyer Waheed Shahzad Butt stated that the Ordinance grants “sweeping powers” to tax officers for tax recovery without issuing prior notice, allowing authorities to “bypass standard procedures and immediately enforce recovery actions.” Critics argue that this move compromises due process and undermines taxpayer protections.
Mr. Butt strongly criticised the government’s decision, stating that these “instant amendments” contradict the principles of the Pakistan LNG case judgment by the IHC, which he believes wisely promoted the rule of law and protected taxpayer rights to fair play and transparency. He warned that such unchecked powers could erode public trust, potentially lead to abuse, undermine the neutrality of the tax system, and promote what he termed “tax robbery moves rather than genuine tax recovery.” Mr. Butt specifically highlighted that the IHC had earlier mandated a Section 138(1) notice, providing taxpayers a seven-day period for voluntary payment before coercive action under Section 140, a procedural safeguard seemingly bypassed by the new law.
Experts warn that the new amendments could “open the door to arbitrary enforcement,” leaving individuals and businesses vulnerable to unjust recovery actions without prior knowledge or recourse. They view it as a “regressive shift from established jurisprudence” that prioritizes procedural fairness and taxpayer safeguards, and caution that arming the tax department with such extreme coercive powers could hamper both local and foreign investment in Pakistan.
The Ordinance explicitly states, “Notwithstanding anything contained in this Ordinance or any other law or any rule, and notwithstanding any decision or judgment of any forum, authority or court, the tax payable under any provision of this Ordinance or any assessment order including amended or further order shall become immediately payable or within the time specified in the notice issued by the income tax authority under this sub-section irrespective of the time provided under any other provision or the said decision or judgment, in case the issue giving rise to the tax payable is decided by a High Court or Supreme Court.” A similar clause mandates immediate recoverability under the same conditions.
