Islamabad, August 31, 2025 – The Federal Board of Revenue (FBR) has introduced a clearer definition of best judgment assessment for the tax year 2025-26 through amendments to the Sales Tax Act, 1990, updated via the Finance Act, 2025.
The best judgment assessment is a legal procedure that allows tax officers to determine a taxpayer’s liability when required documents, records, or returns are not provided. Section 11D of the Act provides comprehensive guidelines on how such assessments are to be conducted.
According to the updated law, a best judgment assessment may be carried out in situations where:
1. A registered person fails to submit their sales tax return despite receiving a notice under Section 26(2A).
2. A taxpayer does not produce relevant accounts, records, or evidence requested by an Inland Revenue officer of at least Assistant Commissioner rank.
In such cases, the officer may issue a show-cause notice and determine the tax payable or refund due using any available information, applying their judgment to calculate a fair liability. Penalties and default surcharges may also be imposed.
Additionally, the law allows officers to disallow or reduce input tax claims if proper invoices or evidence are not provided. However, relief is possible — if the taxpayer files the required return within sixty days of the assessment order, pays the tax along with penalties and surcharge, the notice and order may be withdrawn.
The FBR has also provided for cases where a taxpayer is required to file returns under other tax laws, such as the Income Tax Ordinance 2001, but fails to do so. Here too, an officer may use best judgment based on purchase data and other reasonable grounds to determine liability.
This amendment aims to strengthen compliance and minimize revenue loss while ensuring that assessments are carried out fairly, based on available evidence and professional judgment rather than arbitrary actions.
Disclaimer: This article is based on information from official FBR updates and is for informational purposes only. It should not be treated as legal or financial advice. Taxpayers are advised to consult professional advisors for guidance specific to their circumstances.