FBR seeks tougher penalties for concealment of income, false statements and non-compliance to strengthen tax enforcement.
KARACHI: The Finance Bill 2026 has proposed a substantial increase in penalties under the Income Tax Ordinance, 2001, aimed at strengthening tax compliance and discouraging concealment of income, non-cooperation during audits and other violations.
The proposed amendments significantly enhance fines for taxpayers who fail to provide records, submit false information or evade taxes, reflecting the government’s efforts to improve documentation and expand the tax base.
One of the major changes relates to non-compliance with notices issued under Section 177 of the Income Tax Ordinance, which deals with audits and the production of records and documents.
Under the proposed amendments, the penalty for failing to produce records or documents in response to the first notice under Section 177 will increase from Rs25,000 to Rs100,000. A second failure to comply with a similar notice will attract a penalty of Rs200,000, up from Rs50,000, while a third violation will result in a fine of Rs300,000 compared to the existing Rs100,000.
The Finance Bill also proposes a significant increase in penalties for providing false or misleading statements to the Inland Revenue Authority. Currently, taxpayers face a penalty of Rs25,000 or 50 per cent of the tax shortfall. The proposed amendment seeks to raise this penalty to a fixed amount of Rs500,000.
Similarly, penalties for concealment of income or furnishing inaccurate particulars have been enhanced considerably. The existing penalty of Rs100,000 or the amount of tax sought to be evaded is proposed to be increased to Rs1 million.
The government has also tightened provisions relating to withholding tax obligations. For failure to collect or deduct tax, or failure to deposit collected or deducted tax under Section 160, the proposed penalty has been increased from Rs40,000 or 10 per cent of the tax involved to Rs500,000.
In the case of companies, an additional penalty of Rs500,000 has been proposed for the principal officer, further increasing accountability for corporate tax compliance.
Another important amendment relates to the submission of financial statements by companies and Associations of Persons (AOPs). The Finance Bill clarifies that blank, incomplete, illegible, scanned image-based or password-protected financial statements will be treated as blank submissions.
Under the proposed framework, any person, including companies, banking companies and AOPs, may face a penalty of Rs500,000 or 10 per cent of the tax involved for submitting such deficient financial statements.
Tax experts believe the proposed increase in penalties is intended to deter tax evasion and improve compliance levels across all categories of taxpayers. The government expects the stricter enforcement measures to support revenue collection efforts and encourage accurate reporting of income and financial information.
If approved by Parliament, the revised penalties will take effect from the fiscal year 2026-27 as part of the broader tax reforms introduced through the Finance Bill 2026.
Proposed Income Tax Penalties Under Finance Bill 2026
| Offence | Existing Penalty | Proposed Penalty |
| Failure to produce record/document on first notice under Section 177 | Rs25,000 | Rs100,000 |
| Second failure to comply with notice under Section 177 | Rs50,000 | Rs200,000 |
| Third failure to comply with notice under Section 177 | Rs100,000 | Rs300,000 |
| False or misleading statement to Inland Revenue Authority | Rs25,000 or 50% of tax shortfall | Rs500,000 |
| Concealment of income or inaccurate particulars | Rs100,000 or tax sought to be evaded | Rs1,000,000 |
| Failure to collect/deduct tax or deposit withheld tax under Section 160 | Rs40,000 or 10% of tax | Rs500,000 plus additional Rs500,000 on principal officer of company |
| Blank, incomplete, illegible or password-protected financial statements | Rs500,000 or 10% of tax | Rs500,000 or 10% of tax (extended to all persons including companies, banks and AOPs) |
