Sales tax non-compliance has become significantly more costly from 1 July 2026, with FBR’s budget instructions highlighting enhanced penalties under section 33 of the Sales Tax Act. The changes particularly target businesses that fail to integrate with prescribed digital systems, avoid production monitoring requirements or become involved in fake or flying invoices.
Where a registered person is established, after notice and adjudication, to have issued an invoice for a simulated or fictitious transaction, the consequences can include a penalty equal to the value of the fictitious invoice, including sales tax. In addition, the issuer may be placed on a publicly accessible Simulated Invoice Issuers Register. Input tax claimed by purchasers against invoices issued by a listed person can consequently become subject to automatic reversal and treatment as inadmissible input tax.
Another important development concerns unmatched input tax. Where FBR’s system identifies input tax that cannot be matched with the supplier’s corresponding output declaration, the claimant may face reversal of the credit, default surcharge and a 20% penalty on the unmatched amount, subject to the prescribed process. The practical implication is that sales tax compliance is becoming increasingly dependent on the conduct of the entire supply chain, making supplier verification, invoice matching and timely reconciliation much more important than before.