The federal government has agreed to relax stringent provisions on tax fraud punishments in the Finance Bill 2025 following strong opposition from the Senate Standing Committee on Finance.

The committee, chaired by Senator Saleem Mandviwalla, approved revised Sections 37A and 37AA of the Sales Tax Act, reducing the maximum jail term for tax fraud from 10 years to 5 years and lowering the fine from Rs. 10 million to Rs. 5 million. The committee also recommended that tax fraud be made a bailable offence and that three separate notices be issued before any prosecution is initiated.

Finance Minister assured the Senate panel that these recommendations would be forwarded to the Prime Minister for incorporation into the bill.

In a related development, Prime Minister Shehbaz Sharif directed the inclusion of six safeguards to limit the Federal Board of Revenue’s (FBR) authority to arrest top executives. Arrests will only be permitted if the alleged fraud exceeds Rs. 50 million and after approval by a special FBR board that includes a private sector representative. Cases involving amounts below Rs. 50 million will be investigated but will not lead to arrests.

Additional conditions for arrest include the accused ignoring three summons, attempting to flee, or tampering with evidence. A three-member board will now oversee and approve any arrests related to tax fraud.

Furthermore, arrests will be allowed if the accused fails to respond to three official notices, is suspected of destroying evidence, or is considered a flight risk. Once arrested, the individual must be presented before a magistrate within 24 hours.