Sales tax evaders to face account freeze, utility disconnection

ISLAMABAD: National Assembly’s Standing Committee on Finance has conditionally approved the government’s decision with safeguards to impose strict measures on individuals and businesses not registered under sales tax, including restrictions on operating bank accounts and disconnection of electricity and gas connections.

The committee met on Thursday under the chairmanship of Syed Naveed Qamar, where Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial briefed members on new tax enforcement plans under the Finance Bill 2025.

He said individuals and businesses not registered under sales tax will be barred from operating bank accounts, though a formal notice will be issued before action is taken.

“If a person gets registered, their bank account will be reactivated within two days,” Langrial said, adding that Tier-1 non-registered retailers will face disconnection of their utility services.

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He revealed that only 30,000 to 35,000 of Pakistan’s 300,000 industrial units are registered with the FBR. He also admitted that Pakistan’s tax rate remains high and pointed to widespread tax evasion, noting that electricity theft alone costs the country Rs500–600 billion annually.

Langrial also noted that many business models rely on tax evasion. Many people understate their income, and that enforcement will be based on estimates of sales, supply, and business size, he added.

When asked how FBR would determine if someone was evading sales tax, the FBR chief said income tax data would be cross-checked to assess eligibility for registration.

He acknowledged that even among those in the tax net, many fail to file returns or under-report sales. “One-third of manufacturers aren’t even registered.”

Committee member Javed Hanif backed the proposals, while Chairman Qamar warned against laws that might entrap unintended groups.

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Committee member Sharmila Faruqui argued that the focus should be on offering incentives rather than tightening punishments. “Reducing the tax rate and offering benefits would encourage more people to register under sales tax,” she said.

To this, Finance Minister Muhammad Aurangzeb said the registration thresholds and process would be refined, but ruled out new amnesties or tax breaks. “That era is over. We now need to expand the tax base,” he stressed.

The committee directed the FBR to include safeguards in the plan to temporarily disable accounts, and suggested forming a separate committee to decide on permanent closures.

The committee also instructed the FBR to revise its draft to include protections for genuine taxpayers while taking enforcement action against chronic non-filers.