ISLAMABAD: The government has introduced a series of new provisions to expand sales tax registration and tighten compliance through penalties, including arrests, to curb tax evasion and bridge the country`s sales tax gap.

The new sections introduced through the Finance Bill 2025-26 cover registration, improve compliance and facilitate the transition from traditional to digital transactions to document sales.

Under the proposed amendments, the commissioner is empowered to order banking companies, scheduled banks, and financial institutions to freeze the accounts of non-registered individuals through a formal directive overriding existing laws. This measure positions financial institutions as key enforcers of tax compliance, effectively restricting access to banking services for entities that fail to comply with tax regulations.

Upon registration, the commissioner must promptly lift the restriction, ensuring the swift restoration of normal banking operations. Those affected can appeal to the Chief Commissioner of Inland Revenue within 30 days, providing a structured redressal mechanism.

Penalties and arrests The proposed changes introduce harsher penalties, including imprisonment of up to 10 years, fines reaching Rs10 million and additional penalties equivalent to the taxlossincurred.

The Inland Revenue officers will also be granted broader investigative powers, allowing them to probe, arrest, and prosecute offenders in alignment with the Code of Criminal Procedure, 1898.

To provide a structured resolution mechanism, the amendments allow tax offenders-excluding abettors-to settle charges by paying the tax liability along with penalties and surcharges.

Additionally, Sections 37AA and 37B define the arrest and post-arrest procedures for individuals suspected of tax fraud. Inland Revenue officers may detain offenders with prior approval from the commissioner, though arrests can proceed without approval in urgent cases.

The commissioner retains the authority to release suspects if insufficient evidence or bad-faith arrests are identified. If tax fraud involves a company, key executives-such as directors and CEOs-can also face arrest without exempting the company from its tax obligations.

All arrests must comply with the Criminal Procedure Code, requiring individuals to be presented before a Special Judge or Judicial Magistrate within 24 hours.

Authorities may then grant bail, remand the suspect into Inland Revenue custody, or proceed to trial based on investigation findings.Officers are required to maintain detailed records of arrests and submit formal reports to the Special Judge through the commissioner.

Statements may be recorded under Section 164 of the Code of Criminal Procedure, with the Board authorised to designate additional officers for enforcement.