Punishment for fake invoices: FBR sharply increases sales tax penalties

ISLAMABAD: The Federal Board of Revenue (FBR) has substantially raised penalties and introduced harsh punishments for sales tax registered persons involved in digital non-compliance and offences or using fake/flying invoices/avoiding production monitoring systems from July 1, 2026. The FBR’s sales tax budget instructions (2026-27) issued to the field formations on Friday for immediately enforcing punishments on non-compliant sales taxpayers. According to the FBR’s instructions, the FBR has notified rationalisation of Amounts of Penalties in Section 33 Section 33 provides for offences, penalties and punishments. READ ALSO: FASTER refund system: Govt to curb payments to non-compliant taxpayers Amounts of penalties had not been reviewed / rationalised since a long time which have now been enhanced / rationalised keeping in view the inflationary impact. The said rationalisation is aimed at discouraging non-compliance of tax laws and encouraging compliance, FBR said. The existing clause (25) imposes a penalty of rupees one million in case of failure to integrate his business with the Board or recording of sale and production with the FBR’s computerised system in addition to sealing of his business premises. Through this substitution, a registered person shall be liable to pay a penalty of rupees one million and if he continues to commit the offence after one month of the imposition of first penalty, the registered person shall be liable to second penalty up to five million rupees. The premises shall also be liable to be sealed with or without imposition of penalty in the manner as may be prescribed by the FBR. These measures have been introduced to improve digitalisation of the economy and deter the non-compliance. To curb the menace of fake and flying invoices, a new penalty clause (29) has been inserted which provides that where it is established after notice and adjudication that a registered person issued a tax invoice for a simulated or fictitious transaction, or for which no actual supply of goods or services has taken place, in addition to imposition of penalty equal to the value of simulated or fictitious invoice(s) including sales tax, the name and registration number of person issuing such fictitious invoice or invoices shall be placed on publicly accessible “Simulated Invoice Issuers Register” by the FBR. The registered persons claiming input tax on invoices issued by the person listed on the Simulated Invoice Issuers Register shall face automatic reversal of the input tax credit claimed against invoices issued by the said listed person, from the date of listing and the said input tax credit shall be reversed automatically and treated as inadmissible input tax. Removal of listing on the register has been made contingent upon full payment of the penalty and default surcharge, and upon satisfactory demonstration of compliance. To promote correct and true declarations throughout the supply chain, a new clause (30) has also been inserted which provides that where it is confirmed after issuance of notice and provision of opportunity of being heard that input tax credit claimed by a registered person in respect of any tax period cannot be matched to corresponding output tax declared by the supplier for the same or proximate tax period as identified by FBR’s computerised system, such person is liable to pay penalty of 20 percent of the unmatched input tax amount, in addition to reversal of the inadmissible credit and payment of default surcharge under section 34. Newly inserted clause (31) in section 33 penalises a registered person who fails to reverse the input tax on invoices issued by the person listed on Simulated Invoice Issuers Register as inadmissible input tax within sixty (60) days of listing of invoice issuer. For such person, in addition to reversal of input tax as inadmissible and payment of default surcharge, a penalty of 20 percent of the unreversed input tax credit has been imposed. Substitution of Sub-Sections (2), (3) and (6) of Section 40C — seizure and confiscation against digitally non-compliant registered person. Through substitution of aforesaid sub-sections (2) and (3), the scope of monitoring through a production monitoring system, video analytics or any other prescribed monitoring mechanism has been enhanced. The manufacturers hay been legally barred from removing and selling goods unless such goods are affixed with tax stamps, band role stickers or labels are monitored through a Production Monitoring System, video analytics or any other prescribed monitoring mechanism, etc. This condition shall be applicable to persons other than manufacturers also. This shall be applicable from the date and in such form, style and manner as may be prescribed by the FBR in this behalf. This amendment is aimed at deterring undocumented and unrecorded transactions. Addition of sub-section (6) enables the department to seize and confiscate the taxable goods, in respect of which monitoring, tracking or identification has been prescribed under the Sales Tax Act or rules made there-under, along with the conveyance used for the movement, carriage of transportation of such goods which are manufactured, produced, removed, transported, supplied or otherwise dealt with or without affixing the prescribed tax stamps, band roles, stickers, labels, barcodes or without compliance with the prescribed monitoring system, FBR added. Copyright Business Recorder, 2026

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