The Federal Board of Revenue (FBR) has introduced a penalty provision under Section 182(2) of the Income Tax Ordinance, 2001 for individuals or businesses failing to issue cash memos, invoices, or receipts when required by the ordinance or related rules.
This provision, updated up to June 30, 2021, through the Finance Act, 2021, is designed to promote proper documentation of transactions and curb the practice of conducting business without providing essential financial records.
Text of Section 182(2) – Penalty for Failure to Issue Cash Memo:
Section 182(2) of the Income Tax Ordinance, 2001 reads as follows:
2. Offence: Any person who fails to issue a cash memo or invoice or receipt when required under this Ordinance or the rules made thereunder.
Penalty: Such person shall pay a penalty of five thousand rupees or three per cent of the amount of the tax involved, whichever is higher.
Relevant Sections: 174 and Chapter VII of the Income Tax Rules.
(1) Promoting Proper Documentation: The inclusion of Section 182(2) underscores the importance of proper documentation in financial transactions. Failing to issue a cash memo, invoice, or receipt, as required under the Income Tax Ordinance and related rules, is now explicitly considered an offense. This provision aligns with global best practices, promoting transparency in business dealings.
(2) Clear Penalty Framework: Section 182(2) introduces a clear penalty framework for those who neglect to issue essential financial documents. The penalty is set at either five thousand rupees or three percent of the amount of tax involved, whichever is higher. This establishes a proportionate penalty that reflects the seriousness of the offense.
(3) Encouraging Compliance: The penalty provision serves as a deterrent, encouraging businesses and individuals to comply with the requirements of issuing cash memos, invoices, or receipts. By imposing a financial consequence for non-compliance, the FBR aims to foster a culture of adherence to established rules and regulations.
(4) Flexibility in Penalty Calculation: The provision offers flexibility in the penalty calculation by providing two options – a fixed amount of five thousand rupees or three percent of the tax amount involved. This approach recognizes that the severity of the offense may vary, and the penalty should be commensurate with the specific circumstances of each case.
(5) Alignment with Income Tax Rules: Section 182(2) explicitly refers to relevant sections, including Section 174 and Chapter VII of the Income Tax Rules. This ensures that the penalty provision is integrated into the broader framework of the Income Tax Ordinance and associated rules, maintaining consistency and coherence in the regulatory landscape.
The introduction of Section 182(2) in the Income Tax Ordinance, 2001 represents a proactive step by the FBR to enhance financial transparency and accountability. The penalty provision serves as a deterrent against the non-issuance of cash memos, invoices, or receipts, reinforcing the importance of proper documentation in commercial transactions. Taxpayers, businesses, and individuals are advised to familiarize themselves with these requirements and ensure compliance to avoid the imposition of penalties outlined in Section 182(2).
