Sales Tax Act clarifies tax liability on inherited estates and businesses operating under bankruptcy
ISLAMABAD: The Federal Board of Revenue (FBR) has clarified the legal procedure for recovering outstanding sales tax liabilities from the estate of a deceased registered person and businesses operating under bankruptcy, according to the Sales Tax Act, 1990, updated up to June 30, 2026.
The updated law outlines how tax liabilities are to be treated in both circumstances, ensuring that government tax claims remain enforceable even after the death or bankruptcy of a registered taxpayer.
Tax liability on estate of a deceased person
Under the Sales Tax Act, the outstanding sales tax liability of a deceased registered person becomes the first charge on the deceased’s estate in the hands of the legal heirs or successors.
This means any unpaid sales tax must be recovered from the estate before the remaining assets can be distributed among the heirs or beneficiaries. The provision gives the FBR priority in recovering outstanding sales tax from the assets left by the deceased taxpayer.
Tax recovery from bankrupt businesses
The updated law also prescribes the procedure for recovering sales tax from businesses declared bankrupt.
According to the Act:
If a registered person is declared bankrupt, the sales tax liability passes to the estate in bankruptcy, provided the estate continues to operate the business.
Any sales tax liability incurred during the administration of the bankrupt estate is treated as a current operating expense.
Such tax must be paid before the claims of other creditors are settled, giving sales tax obligations priority over most other financial liabilities.
Revenue protection measures
The FBR said these provisions are designed to safeguard government revenue by ensuring that outstanding sales tax obligations do not lapse because of the death or bankruptcy of a registered taxpayer.
The updated provisions form part of the Sales Tax Act, 1990, as amended up to June 30, 2026, and provide the legal framework for recovering unpaid sales tax from deceased estates and bankrupt businesses while protecting the government’s tax claims.