Pakistan's FY27 Budget Introduces Steeper Tax Penalties
Pakistan's government has substantially increased penalties for various tax non-compliance issues through the Finance Bill FY27. These stricter fines apply across federal taxes, including income tax, sales tax, and federal excise duty, and are intended to strengthen tax compliance and aid revenue mobilization for the Federal Board of Revenue (FBR). Key changes include a fivefold increase in the cost of returning to the active taxpayers list (ATL) for companies, significant hikes in fines for audit-related deficiencies, and enhanced penalties for late filing and withholding tax defaults. Businesses also face the risk of premises being sealed for persistent non-compliance.
The government of Pakistan has introduced substantially increased penalties for tax compliance through the Finance Bill FY27. These changes affect federal taxes such as income tax, sales tax, and federal excise duty, with the aim of strengthening tax compliance and providing the Federal Board of Revenue (FBR) with an additional tool for revenue mobilization.
Under the proposed amendments, the cost of rejoining the active taxpayers list (ATL) has seen significant increases. For companies, the fee has risen fivefold from Rs20,000 to Rs100,000. Associations of persons will now pay Rs50,000, up from Rs10,000, while individuals face a penalty increase from Rs1,000 to Rs25,000.
Penalties linked to audit proceedings have also been enhanced. Fines for failing to produce records have been raised from previous tiers of Rs25,000, Rs50,000, and Rs100,000 to Rs100,000, Rs200,000, and Rs300,000, respectively. Providing false or misleading information will now incur a penalty of Rs500,000 or 100 percent of the tax shortfall, whichever is higher, an increase from Rs25,000 or 100 percent of the tax shortfall. Concealing income or submitting incorrect details will result in a tenfold increase in penalty, from Rs100,000 to Rs1 million, in addition to existing provisions related to the amount of tax evaded.
Failure to deduct or collect withholding tax now carries a penalty of Rs500,000, up from Rs40,000. Principal officials of a defaulting company will also face an additional personal penalty of Rs500,000. New measures target the misuse of withholding tax credits, with penalties equal to the excess amount claimed.
In sales tax, the Finance Bill proposes wide-ranging increases. Fixed penalties for late filing have been raised from Rs10,000 to Rs50,000. For returns filed within 10 days after the due date, the daily penalty is set to increase from Rs200 per day to Rs2,000 per day. Other sales tax fines have also been enhanced, with some rising from Rs5,000 or 3 percent of the tax involved to Rs25,000 or 5 percent, and from Rs10,000 or 5 percent of tax involved to Rs50,000 or 10 percent, whichever is higher. Daily default penalties within 10 days can also increase from Rs500 per day to Rs5,000 per day in specific scenarios.
Tax authorities have also intensified action against persistent non-compliance, with higher penalties and the possibility of sealing business premises. Existing law allows for a penalty of up to Rs1 million and potential sealing after two months of continuous default.
According to Dawn Pakistan, these measures are widely viewed as a means to provide the FBR with additional tools for revenue mobilization.
