ISLAMABAD: Officials from the Federal Board of Revenue (FBR) have reportedly used questionable tactics to compel registered sales tax (ST) payers to deposit taxes without initiating proper adjudication procedures, according to documents and legal correspondence reviewed in a recent case.
Field formations within the FBR are alleged to have pressured taxpayers into making upfront payments under threat of suspending their sales tax registration — a move tax experts say contradicts established legal precedent and violates due process under the Sales Tax Act, 1990.
A prominent taxpayer — contributing over Rs. 12 billion annually and registered with Zone-IV of the Large Taxpayers Office (LTO) Lahore — recently challenged the department’s actions in an appeal, asserting that the procedure followed was unlawful.
Suspension Notice and Allegations
On September 15, 2025, the LTO issued a notice signaling intent to suspend the company’s sales tax registration based on two key allegations:
- Claiming inadmissible input tax of Rs. 11,097,347 for the tax period spanning July 2024 to June 2025.
- Misreporting exempt sales made in the FATA/PATA region, allegedly resulting in a sales tax liability of Rs. 157,102,705.
In response, the taxpayer’s authorized representative submitted a detailed reply on September 20, 2025, arguing that most of the disputed input tax (Rs. 10,260,681) had already been voluntarily reversed in earlier returns. The remaining Rs. 836,666, the representative claimed, was validly claimed and backed by rulings of superior appellate forums, including the Supreme Court.
Regarding sales in FATA/PATA, the taxpayer maintained that these were rightly exempt under applicable provisions of the Sixth Schedule as they stood at the time. Additionally, a prior notice issued by the Deputy Commissioner Inland Revenue (DCIR) on June 3, 2025, had acknowledged the exemption, merely questioning apportionment — not taxability.
Following this, the company deposited Rs. 136,020,935 in output tax, exceeding the amount raised in the earlier DCIR notice, and requested closure of proceedings.
Alleged Pressure and Registration Suspension
Despite this, the Commissioner reportedly demanded a payment of Rs. 500 million as a precondition for restoring the sales tax registration. The taxpayer’s management refused to comply with the demand, considering it coercive.
Subsequently, on September 24, 2025, the Commissioner issued a suspension order, deactivating the company’s registration in the FBR’s IRIS system. The order did not address the taxpayer’s detailed reply, merely stating that the response was unsatisfactory without offering reasoning or reproducing the reply’s content.
The order is now under challenge before the Appellate Tribunal Inland Revenue, which granted a 30-day suspension of the Commissioner’s order on September 30, 2025, directing the FBR to reinstate the company’s registration.
Tribunal’s Interim Relief Ignored
Despite the tribunal’s directive, the Commissioner reportedly refused to act on the interim order, repeating that unless Rs. 500 million — now increased to Rs. 700 million — was paid, the registration would not be restored. The official also reportedly expressed personal embarrassment over the company’s refusal to comply with an alleged earlier verbal commitment to make such a payment.
Tax experts argue that initiating tax fraud proceedings or suspending registrations requires prior tax assessment under Section 11 of the Sales Tax Act, 1990. A recent Supreme Court judgment (2025 PTD 1270 – 132 TAX 151) also reaffirms that any allegations of fraud must be preceded by proper adjudication and issuance of show-cause notices.
In this case, no such assessment has been made under the law before suspending registration — a move being criticized as arbitrary and harmful to compliant businesses.
Broader Concerns Raised by Tax Experts
Speaking on the matter, Shahid Jami, a tax consultant, noted that the use of suspension notices has become a frequent tactic to extract tax payments without due legal procedure. He urged the FBR to conduct a comprehensive audit of such notices and hold accountable any officers found misusing their authority.
“Suspending the registration of a compliant taxpayer halts business operations and results in loss of revenue for the government itself,” he said. “The law requires assessment before any coercive measures, especially in fraud cases.”
According to the taxpayer’s records, sales in FATA/PATA account for only 0.44% of their total turnover — making it unlikely that any misreporting in that segment was intentional or material.
As of now, the taxpayer awaits enforcement of the tribunal’s suspension of the order and restoration of their registration, while continuing to challenge what they describe as unlawful practices within the tax department.
