ISLAMABAD: The government has substantially increased penalties for late filing of income tax returns, restoration to the active taxpayers list, and deficiencies in document accessibility and formatting, apparently an effort to strengthen tax compliance.

The increases, introduced through the Finance Bill FY27, apply across federal taxes, including income tax, sales tax and federal excise duty. In some cases, penalties have more than doubled and are widely seen as providing the Federal Board of Revenue (FBR) with an additional tool for revenue mobilisation.

Under the proposed changes, the cost of returning to the active taxpayers list (ATL) has been raised fivefold for companies to Rs100,000 from Rs20,000, while it will increase to Rs50,000 for associations of persons from Rs10,000 and Rs25,000 for individuals from Rs1,000.

The substantial increase is intended to improve tax compliance, but it will be punitive for small taxpayers.

Finance bill expands FBR’s enforcement powers; ATL restoration costs jump fivefold; businesses risk sealing of premises

The finance bill also enhanced penalties linked to audit proceedings across the board. Fines for failure to produce records have been raised from Rs25,000, Rs50,000 and Rs100,000 to Rs100,000, Rs200,000, and Rs300,000, respectively.

The penalty for providing false or misleading information has been increased from Rs25,000 or 100pc of the tax shortfall (whichever is higher) to Rs500,000 or 100pc of the amount of the tax shortfall, whichever is higher.

The penalty for concealing income or submitting incorrect details has been raised tenfold to Rs1 million from Rs100,000, while the existing provisions tied to the amount of tax evaded will continue to apply. Similarly, failure to deduct or collect withholding tax will now attract a penalty of Rs500,000, which was raised from the existing Rs40,000. Where the defaulter is a company, its principal officials will face an additional personal penalty of Rs500,000.

The Finance bill also proposes new measures which also 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 in penalties and introduces new enforcement tools. Fixed penalties for late filing have been raised to Rs50,000 from the existing Rs10,000, while returns filed within 10 days after the due date, the daily penalty is proposed to increase from Rs200 per day to Rs2,000 per day.

It has been proposed to increase the penalty from Rs5,000 or 3pc of the tax involved to Rs25,000 or 5pc of the tax involved, whichever is higher. Similarly, fine is enhanced from Rs10,000 or 5pc of tax involved to Rs50,000 or 10pc of the tax involved, whichever is higher. It has also proposed to increase penalty from Rs10,000 to Rs50,000, while the daily default penalty within 10 days is proposed to increase from Rs500 per day to Rs5,000 per day. Similarly, the penalty increased from Rs10,000 to Rs50,000 or 5pc of the tax involved, whichever is higher.

The tax authorities have also tightened action against persistent non-compliance, imposing higher penalties and sealing business premises. The existing law provides a penalty of up to Rs1m and possible sealing after two months of continued default.

Published in Dawn, June 14th, 2026