FBR revises sales tax penalties, introduces a simulated invoice register and tightens enforcement against non-compliant businesses.
ISLAMABAD: The Federal Board of Revenue (FBR) has significantly increased and rationalised penalties for violations of the Sales Tax Act, 1990, citing rising inflation and the need to strengthen tax compliance.
The FBR explained the changes in Sales Tax Circular No. 1 of 2026, which outlines major amendments to the Sales Tax Act, 1990 introduced through the Finance Act, 2026.
According to the FBR, Section 33 of the Sales Tax Act covers offences, penalties and punishments. The authority noted that penalty amounts had not been reviewed or rationalised for a considerable period and have now been revised in view of inflation.
The FBR said the revised penalties are intended to discourage non-compliance with tax laws and encourage taxpayers to fulfil their obligations.
Rs1m penalty for failure to integrate businesses
Under substituted clause (25) of Section 33, a registered person who fails to integrate their business with the Board or record sales and production through the Board’s computerised system will face a Rs1 million penalty.
If the offence continues one month after the imposition of the first penalty, a second penalty of up to Rs5 million may be imposed.
The business premises may also be sealed, with or without the imposition of a penalty, in accordance with the procedure prescribed by the FBR.
The FBR said the measures are aimed at accelerating the digitalisation of the economy and deterring businesses from remaining outside the required digital systems.
FBR introduces register for simulated invoice issuers
A new clause (29) has been inserted into Section 33 to tackle fake and fictitious invoices.
Where, following notice and adjudication, it is established that a registered person issued a tax invoice for a simulated or fictitious transaction, or for a transaction where no actual supply of goods or services took place, the person will face a penalty equal to the value of the simulated or fictitious invoice, including sales tax.
In addition, the person’s name and registration number will be placed on a publicly accessible “Simulated Invoice Issuers Register” maintained by the FBR.
Businesses claiming input tax against invoices issued by a person listed on the register will face automatic reversal of the input tax credit from the date of listing. The reversed amount will be treated as inadmissible input tax.
Removal from the register will be conditional upon full payment of the penalty and default surcharge, along with satisfactory demonstration of compliance.
20% penalty introduced for unmatched input tax
The FBR has also introduced clause (30) to promote accurate declarations throughout the supply chain.
Where, after notice and an opportunity of being heard, it is established that input tax claimed by a registered person for a tax period cannot be matched with the corresponding output tax declared by the supplier for the same or a proximate tax period, as identified through the Board’s computerised system, the registered person will face a penalty equal to 20% of the unmatched input tax amount.
The taxpayer will also be required to reverse the inadmissible input tax and pay default surcharge under Section 34.
Additional penalty for failure to reverse inadmissible input tax
Under newly inserted clause (31) of Section 33, a registered person who fails to reverse input tax claimed on invoices issued by a person listed on the Simulated Invoice Issuers Register within 60 days of the issuer being listed will face an additional penalty.
The taxpayer will be required to reverse the input tax as inadmissible and pay the applicable default surcharge, along with a penalty of 20% of the unreversed input tax credit.
The latest measures represent a significant tightening of the sales tax enforcement framework, with the FBR linking higher financial penalties and digital monitoring to efforts to curb fictitious transactions, improve documentation and strengthen compliance across the supply chain.