Islamabad, September 11, 2025 – The Federal Board of Revenue (FBR) has released the updated version of the Sales Tax Act, 1990, incorporating all amendments introduced through the Finance Act, 2025.
Among the most important provisions emphasized is the requirement for taxpayers to retain their record for six years to ensure transparency, compliance, and facilitation of audit processes.
Under Section 24 of the Act, every registered person is legally bound to keep their record and relevant documents for at least six years after the conclusion of the tax period to which the documents relate. This retention period is vital because tax disputes, audits, and appeals often take years to conclude. In fact, the law also allows for retention beyond six years until the final decision of any ongoing proceedings—whether related to assessment, appeal, revision, or reference—has been made.
Moving further, Section 25 of the Sales Tax Act deals with the audit of sales tax affairs. It empowers the Commissioner of Inland Revenue to direct an officer, not below the rank of Assistant Commissioner, to conduct an audit of a registered person’s sales tax affairs. The Commissioner must have reasons recorded in writing before issuing such a directive, and these reasons must be communicated to the taxpayer through a formal notice.
The law clarifies that the Commissioner’s authority to order an audit is independent and not restricted by the powers of the FBR Board under Section 72B. Once a notice is issued, the Inland Revenue officer has the right to call for any record, whether in physical or electronic form, to verify compliance with sales tax provisions. Taxpayers are required to provide access to their accounts, financial statements, withholding statements, and even third-party information if needed.
Importantly, the officer cannot demand records beyond the six-year statutory limit. This limitation protects businesses from unnecessary administrative burdens while balancing the FBR’s right to scrutinize. However, within the six-year period, the officer has wide-ranging authority to verify output tax, input tax, refund claims, and stock positions to ensure accuracy of declared liabilities.
In modern practice, the Act also permits audits to be conducted electronically, using video links or digital platforms prescribed by the Board. This move reflects Pakistan’s gradual shift toward digitization in tax compliance. After completing the audit, if discrepancies are identified, the officer may pass an order under Section 11E, but only after giving the taxpayer an opportunity to be heard.
The Act also provides leniency measures. If a registered person voluntarily pays short-paid tax or admits an error before receiving an audit notice, penalties may be waived. Even during an audit, partial relief is available if dues are cleared promptly.
In summary, the revised Sales Tax Act underscores two critical points: businesses must carefully maintain their record for six years, and audits of sales tax affairs remain a cornerstone of compliance. These provisions aim to strike a balance between effective enforcement and taxpayer facilitation while ensuring Pakistan’s tax system remains robust and credible.
Disclaimer: This article is for informational purposes only and is based on the provisions of the Sales Tax Act, 1990 as updated through the Finance Act, 2025. It should not be considered legal or tax advice. Readers are advised to consult professional tax advisors or the Federal Board of Revenue (FBR) for specific guidance regarding their individual circumstances.