Finance Act 2026: New Sales Tax Penalties

Answer first. From 1 July 2026, most fixed penalties in section 33 of the Sales Tax Act went up about fivefold. A late return is now Rs 50,000, not Rs 10,000. A missing invoice costs the higher of Rs 25,000 and 5% of the tax. A business that should be integrated and is not faces a fine of as much as Rs 1 million, a further Rs 5 million at most if it is still not integrated a month later, and possible sealing. Three new serials target fake invoices. The issuer pays a penalty equal to the invoice and is named on a public register. Buyers pay 20% of any input tax that cannot be matched to a supplier, or that they fail to reverse within 60 days of the supplier being listed. The Act also widened FBR’s power to suspend registrations and to change a business’s input tax cap.

The changes in one table

These are the section 33 entries the Finance Act 2026 changed, as shown in FBR’s consolidated Sales Tax Act amended up to 30 June 2026. “Whichever is higher” applies where a rupee amount and a percentage are both given.

Sales tax penalties changed by the Finance Act 2026
Offence (section 33 serial)	From 1 July 2026	Before
Return filed late (1)	Rs 50,000; Rs 2,000 a day if filed within 10 days	Rs 10,000; Rs 200 a day if filed within 10 days
Invoice not issued when required (2)	Rs 25,000 or 5% of the tax	Rs 5,000 or 3% of the tax
Invoice showing tax issued without authority (3)	Rs 50,000 or 10% of the tax	Rs 10,000 or 5% of the tax
Tax not paid on time (5)	Rs 50,000 or 5%; Rs 5,000 a day if paid within 10 days	Rs 10,000 or 5%; Rs 500 a day if paid within 10 days
Not registering before making taxable supplies (7)	Rs 50,000 or 5% of the tax	Rs 10,000 or 5% of the tax
Records not kept (8)	Rs 50,000 or 5% of the tax	Rs 10,000 or 5% of the tax
Not registering, or not integrating, when required to integrate (25)	Up to Rs 1 million; a second penalty of up to Rs 5 million if the default continues a month after the first; sealing with or without a penalty	Rs 1 million and sealing
Invoice for a fake supply (29)	A penalty equal to the face value of the invoice, and listing on a public register	New
Input tax that cannot be matched to the supplier’s output tax (30)	20% of the unmatched input tax, plus reversal and default surcharge	New
Input tax from a listed fake-invoice issuer not reversed within 60 days (31)	20% of the unreversed input tax, plus reversal and default surcharge	New

FBR’s Circular 01 of 2026, dated 11 September 2026, says the amounts “had not been reviewed / rationalized since a long time” and were raised for inflation and to discourage non-compliance.

Not integrating

Two entries deal with businesses that should be on FBR’s e-invoicing system and are not.

Serial 25, substituted by the Finance Act 2026, covers a person who must integrate for monitoring, tracking, reporting or recording of sales and production, and who fails to register or fails to integrate in the time FBR notified. The first penalty can reach Rs 1 million. A month after it is imposed, a business still in default can be fined again, this time as much as Rs 5 million. The premises can be sealed with or without a penalty.

Serial 25A, which the Finance Act did not change, covers a person required to integrate under section 23 who fails to register or integrate, or who fails to issue electronic invoices after integrating. Its fines climb with each default: Rs 500,000, then Rs 1 million, Rs 2 million and Rs 3 million, each after fifteen days, and the premises can be sealed.

The two overlap, and FBR has not published which applies to a given default. Take advice on your own position. What is clear is that both now sit beside a wider power to suspend a registration, covered below.

Fake invoices and the public register

Serial 29 is aimed at invoices for supplies that never happened, often called fake or flying invoices. Where it is established, after notice and adjudication, that a registered person issued an invoice for a simulated or fictitious transaction:

they pay a penalty equal to the face value of the invoice, including sales tax;
FBR places their name and registration number on a publicly accessible Simulated Invoice Issuers Register;
input tax that anyone claimed on their invoices is reversed automatically and treated as inadmissible from the date of listing;
the listing is removed only after the penalty and default surcharge are paid in full and compliance is shown.

As at 1 October 2026, we have not found the register published online. Business Recorder reported in September that FBR plans to publish the names. Check FBR’s website for it before relying on any list.

The penalties that fall on buyers

This is the change most businesses have not noticed. Two new penalties apply to the buyer, not to the supplier who caused the problem.

Serial 30, unmatched input tax. Where FBR’s system finds that input tax you claimed for a tax period cannot be matched to output tax your supplier declared for the same or a nearby period, and the mismatch is confirmed after notice and a hearing, you pay 20% of the unmatched amount. You also reverse the credit and pay default surcharge.

Serial 31, slow reversal. Where you claimed input tax on invoices from a supplier who is later placed on the Simulated Invoice Issuers Register, you must reverse that input tax within 60 days of the listing. If you do not, you pay 20% of the amount not reversed, again with the reversal and default surcharge.

The lesson is that a supplier’s compliance is now part of your own tax position. A supplier who does not declare your purchases, or who turns out to be issuing fake invoices, costs you the input tax and a 20% penalty on top.

Beyond penalties

The Finance Act 2026 also gave FBR tools that work faster than a penalty order.

Suspension and blacklisting. Section 21(2) already let the Commissioner suspend registrations involved in fake or flying invoices. It now also covers failing to integrate with FBR’s e-invoicing system or to install a production monitoring system. Business Recorder reported on 25 September 2026 that suspensions for non-integration had begun. We have not seen an FBR document announcing them.
Input tax cap. Section 8B normally limits input tax adjustment to 90% of output tax. FBR can now raise or lower that ratio for a person based on their compliance with its digital systems, including digital invoicing and POS.
Seizure. Amendments to section 40C let FBR seize and confiscate goods, with the vehicle carrying them, where prescribed monitoring was not followed. SRO 1662(I)/2026 has since set out a sealing and confiscation procedure.
Invoices for exempt supplies. Section 23(1) now requires invoices for exempt supplies and advance receipts too. The FBR-number part applies from a date FBR will notify.

The income tax side

The same Act changed the Income Tax Ordinance in ways that point the same direction.

Section 21(r). 3% of the expenses a person claims can be disallowed if they fail to install an electronic resource, or to act as an integrated enterprise, where the law requires it.
Section 182, new serial 2A. Where FBR has required a person under section 174(5) to install and use a prescribed electronic resource and they do not, the penalty is 1% of turnover or Rs 1 million, whichever is higher, for the first default, and Rs 2 million for each later quarterly default.
Section 64D. On the positive side, businesses that invest in the hardware and software needed to integrate can claim a tenth of that investment as an income tax credit. Our section 64D post covers the conditions.

How the income tax requirements apply to a given business depends on what FBR has required of it, so ask your adviser.

What to do about it

Be live. If you are not yet issuing e-invoices, start now. Our catch-up plan sets out the order.
Issue every invoice. Fix rejected invoices the same day, so no sale is left without an e-invoice.
File and pay on time. A day late now costs Rs 2,000 for a return and Rs 5,000 for a payment, before the ten days run out.
Check your suppliers. Before you pay a new supplier, check they are registered and on the active taxpayer list. Each month, compare the purchases your suppliers declared against your NTN with your own purchase book, and chase the gaps early.
Act on listings within 60 days. If a supplier appears on the Simulated Invoice Issuers Register, reverse the input tax on their invoices well inside the 60 days.
Watch IRIS. FBR’s new electronic scrutiny sends discrepancy notices through IRIS with as little as seven days to respond. Our post on advance intimations explains them.

FAQs

What is the penalty for a late sales tax return from July 2026? Rs 50,000 under section 33, serial 1, as amended by the Finance Act 2026. If the return is filed within ten days of the due date, the penalty is Rs 2,000 for each day instead.

What is the penalty for not issuing a sales tax invoice? Rs 25,000 or 5% of the tax involved, whichever is higher, from 1 July 2026. It was Rs 5,000 or 3%.

What is the Simulated Invoice Issuers Register? A public register, created by the Finance Act 2026, of persons found after notice and adjudication to have issued invoices for fake supplies. Input tax claimed on their invoices is reversed automatically from the date of listing.

Can a buyer be penalised for a supplier’s fake invoice? Yes. A buyer who does not reverse input tax on a listed issuer’s invoices within 60 days pays 20% of the unreversed amount. A buyer whose input tax cannot be matched to a supplier’s declared output tax can also pay 20% of the unmatched amount.

Can FBR suspend our registration for not integrating? Yes. Section 21(2), as amended by the Finance Act 2026, now covers failure to integrate with FBR’s e-invoicing system or to install a production monitoring system.

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