The truth about the tax ordinance

Since the promulgation of the Tax Laws (Amendment) Ordinance, 2025, several commentaries have surfaced in editorial columns, professional circles, and even in government forums.

They raise misinformed concerns about the constitutionality and fairness of the ordinance, as well as the implications it may have for taxpayer rights. While public debate on fiscal policy is both necessary and welcome, it is equally important that such discussions be grounded in facts and legal clarity, not in vested interest.

In reality, the reforms introduced by this ordinance are not arbitrary and are rooted in a well-thought-out transformation plan by the Federal Board of Revenue (FBR) to address enforcement issues that have surfaced repeatedly over the years. These reforms are not reactionary but carefully aimed at strengthening institutional credibility, honouring judicial decisions and extending enforcement to areas that continue to operate in regulatory grey zones.

The claim that the ordinance bypasses parliament and violates Article 77 of the constitution is inaccurate. The constitution of Pakistan permits the promulgation of ordinances under Article 89(1) when parliament is not in session. Every government has used this mechanism when warranted by urgency and public interest. In this case, the ordinance does not impose any new tax or fiscal obligation, it only reforms the mechanism for implementing tax assessments upheld by superior courts. The principle of ‘no taxation without representation’ is not at stake here, because there is no imposition of a new levy. It is the lawful enforcement of already enacted taxes and tax assessments based thereon, which the apex courts have upheld.

Similarly, suggesting that the ordinance undermines the taxpayers’ right to appeal is a selective reading of the legal framework. The ordinance authorises recovery only once the high court or Supreme Court has confirmed a tax demand and no stay is in the field. The right to appeal to the Supreme Court remains fully intact. The ordinance closes a procedural loophole that has long allowed indefinite delays in recovery even after conclusive rulings.

It must be emphasised here that by the time a matter reaches the high court, the taxpayer has already enjoyed substantial time at every stage of litigation: a minimum of 30 days after the original assessment order, plus a minimum of 30 days after the order of the Commissioner Appeals, plus a minimum of 30 days after the order of Appellate Tribunal Inland Revenue (ATIR). That’s sufficient appellate protection and a minimum of three months before the matter reaches the high court. Mandating immediate recovery after the high court decision is neither excessive nor premature; it is simply a logical endpoint in the judicial chain.

It is equally important to clarify that the ordinance does not violate due process available to the taxpayer under Article 4 and 10A of the constitution. In fact, due process is precisely what the taxpayer has received through multiple stages of litigation. The ordinance activates recovery only after due process culminates in a high court ruling. This provision does not preclude further legal recourse, but it does entitle the tax authority to recover the confirmed tax demand in the absence of any further stay, a principle that is aligned with global practices. That the enforcement provision applies uniformly to all taxpayers with confirmed tax assessments at the high court or Supreme Court level further ensures that equality as envisioned under Article 25 of the constitution remains intact, and there is no element of discrimination.

Claiming that Section 175C of the ordinance also introduces coercive monitoring powers is a mischaracterisation of the amendment. In truth, the ordinance formalises production monitoring in sales tax-exempt sectors. In contrast, such monitoring is already permissible under existing law for sectors taxed under the sales tax regime. The goal here is not to harass but to bring consistency in enforcement. These monitoring protocols will also be subject to strict oversight and clearly defined parameters to prevent misuse. This provision is meant to create a more balanced and equitable tax base, not to expand discretionary power.

The critique that this ordinance will harm investor confidence is completely devoid of merit. Enforcing court-validated tax demand does not erode investor confidence; it promotes it. In any functioning economy, the credibility of legal decisions is a cornerstone of predictability and trust. Allowing taxpayers to indefinitely defer tax payment even after adverse high court or Supreme Court rulings, signals institutional weakness, not protection.

This ordinance reinforces the authority of the superior judiciary by ensuring its decisions carry enforceable weight; it recognises that high court orders are not merely advisory but binding in nature. This measure corrects a long-standing tax enforcement gap by making recovery immediate once the judicial process is complete, unless a further stay is in the field. It is a step towards restoring institutional balance, not upsetting it.

Accordingly, comparing enforcement actions under this ordinance to ‘suspension of recovery during appeals’ rules in other countries is misleading at best. In many countries, the taxpayer may request a suspension of recovery, but only after furnishing financial guarantees or security bonds. In Pakistan, the state bears such fiscal burdens, while taxpayers benefit from cost-free delaying tactics in matters of tax revenue. The ordinance does not take away the right to appeal. It simply ensures that recovery is not automatically stalled unless the taxpayer actively seeks, and secures, a stay order.

Finally, extending enforcement power to provinces is a measured and practical step, particularly for the tobacco sector. This provision responds to a particular operational challenge. The FBR’s field formations are heavily concentrated in major cities, whereas the illicit cigarette trade has proliferated in smaller tehsils and rural areas. Empowering designated provincial officers to confiscate smuggled or non-duty-paid tobacco allows coordinated action in areas where the FBR lacks presence. Detailed SOPs are being developed to ensure this authority is used exclusively for the tobacco sector and under a comprehensive inter-agency oversight framework.

Unfortunately, today, a growing number of critiques on our evolving tax policy are shaped less by a commitment to reform and more by personal and commercial interest. When legally grounded tax measures are routinely portrayed as aggressive enforcement, it creates a perception that any assertion of state authority is inherently suspect.

These narratives corrode taxpayer morale by consistently undermining the legitimacy of enforcement actions. More importantly, the misinformation perpetuated through such agendas discourages voluntary compliance and erodes public trust in state institutions. Over time, this damages the broader fiscal ecosystem, making it harder to sustain a stable, rules-based economy. We must be careful not to confuse self-serving commentary with public-interest debate.

The writer holds a PhD in Economics from Tulane University and is a public policy practitioner. She tweets/posts @ZehraFarooq and can be reached at: Zehra.farooq@gmail.com