Arbitrary powers
In a letter addressed to Finance Minister Muhammad Aurangzeb, Secretary General of OICCI has said that such arbitrary measures, without thorough consultation with key stakeholders and consideration of its potential impact on the business environment, add to a negative perception of the country as a business (un)friendly destination.
The intention behind the proposal may be to deter tax evasion and strengthen enforcement, but it could easily backfire by creating fear and mistrust among investors.
The OICCI is rightly worried that granting arrest powers to tax officials would open the door to potential misuse, harassment, and overreach, resulting in unwarranted arrests, legal battles, and reputational damage for companies. In fact, leaders of almost all political parties — when out of power — have faced such punitive measures provided for in the National Accountability Bureau (NAB) law. It was to guard against such abuses that a while ago the accountability law was amended to significantly soften some of its harshest provisions.
The ruling coalition should have known better than to allow similar high-handedness under the FBR. In any regulatory system, especially one as sensitive as taxation, the enforcement mechanisms need to be based on clear, irrevocable guidelines.
As regards the issue at hand, local investors would be the first to react to the new policy. Faced with the threat of arrest over alleged discrepancies – such as those arising from management errors, disputes, or differing interpretations — they may scale back operations or shift to the informal sector, and reduce the already small tax base.
Local investors' lack of trust in the system will not be ignored by foreign investors. In fact, foreign companies are known to fully evaluate investment destinations based on a combination of factors, such as political stability, continuity of policies, regulatory clarity, and how local enterprises are treated.
Instead of increasing tax officials' powers the government focus ought to be on reforming and modernising the FBR. To ensure compliance, conversations in public forums have repeatedly been highlighting the need for digitising relevant processes to reduce human contact between the FBR officials and potential taxpayers.
Rather than resorting to arbitrary arrest and prosecution the government needs to weigh the long-term economic costs of such measures against short-term enforcement benefits. It must think of more constructive avenues for increasing tax collection.
Copyright Business Recorder, 2025
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