Audit says thousands of taxpayers escaped penalties for late sales tax returns and delayed tax payments

ISLAMABAD: The Federal Board of Revenue (FBR) failed to impose and recover Rs3.54 billion in FBR penalties and default surcharges from thousands of taxpayers who either filed sales tax returns late or delayed payment of sales tax, according to the latest audit report of the Auditor General of Pakistan (AGP).

The audit found that the irregularity involved 9,582 taxpayers across 19 FBR field offices during the audit of fiscal years 2022-23 and 2023-24.

AGP Highlights Weak Enforcement

Under Sections 33 and 34 of the Sales Tax Act, 1990, taxpayers who fail to submit sales tax returns by the due date are liable to a Rs10,000 penalty. Taxpayers found to have knowingly or fraudulently made false statements face a penalty of Rs25,000 or 100% of the tax involved, whichever is higher. Registered persons who fail to pay sales tax within the prescribed period are also required to pay a default surcharge in addition to the outstanding tax.

According to the AGP, the FBR did not impose the required penalties and default surcharges despite taxpayers failing to file returns on time, submitting late returns or depositing sales tax after the due date.

The audit further observed that the tax authority did not initiate legal proceedings against the registered persons, resulting in the non-imposition and non-recovery of FBR penalties and default surcharges amounting to Rs3.535 billion.

The audit observations were communicated to the department between February and November 2023.

FBR Response

In its reply, the FBR stated that recovery proceedings involving Rs47 million were in progress, while legal proceedings had been initiated for cases involving Rs3.036 billion.

The tax authority added that cases worth Rs215.37 million were under adjudication, whereas no response had been provided in cases involving Rs236.83 million.

During meetings held between July 2024 and January 2025, the Departmental Accounts Committee (DAC) directed the FBR to expedite recoveries, complete pending legal and adjudication proceedings, and submit comprehensive replies for cases where no response had been furnished.

However, the AGP noted that no further progress had been reported by the time the audit report was finalised.

AGP Recommendations

The Auditor General recommended that the FBR accelerate the recovery of outstanding penalties and default surcharges, conclude pending legal and adjudication proceedings, and strengthen enforcement of the sales tax regime to ensure timely filing of returns and prompt payment of taxes.

The report stressed that stronger compliance measures are necessary to improve tax administration and prevent revenue losses arising from delayed filing and payment of sales tax obligations.