Pakistan finance bill targets tax compliance with mandatory e-filing, digital monitoring

Pakistan’s Finance Bill 2026-27 proposes stricter tax compliance requirements, tougher penalties for violations and mandatory electronic tax filing as part of the government’s efforts to strengthen tax administration and expand economic documentation.

The draft legislation, prepared in line with parliamentary directives for the upcoming Finance Act, would impose heavier penalties on taxpayers who fail to comply with notices issued by the Federal Board of Revenue (FBR).

Under the proposed amendments, a first failure to comply with an FBR notice would result in a penalty of PKR 1 million. Repeated violations could attract fines of up to PKR 2 million.

The bill also introduces enforcement measures related to the installation and operation of electronic tax monitoring systems. Beginning July 1, businesses that fail to install mandatory electronic monitoring systems could face legal action.

The legislation proposes penalties and possible imprisonment of up to five years for individuals found tampering with, disabling or damaging the FBR’s electronic monitoring infrastructure.

Factories, industrial units and commercial establishments that intentionally damage or interfere with tax monitoring equipment could also face financial penalties and other legal consequences.

A first violation involving disruption of the electronic monitoring system would carry a fine of PKR 1 million, while subsequent violations would result in an additional PKR 1 million penalty for each occurrence.

The bill makes installation of the electronic monitoring system mandatory within the prescribed timeframe and requires taxpayers to ensure its continued operation and maintenance.

To encourage compliance, the government proposes rebates of up to PKR 30 million for taxpayers who install approved electronic monitoring systems.

The FBR is expected to publish detailed procedures governing installation requirements, system failures and enforcement mechanisms on its website on July 1.

The legislation also seeks to digitize tax administration by making electronic filing mandatory for income tax returns from July 1.

Under the bill, all income tax returns would have to be submitted electronically through the FBR's IRIS portal. Corporate financial statements would also be required to be filed in machine-readable formats.

The proposed amendments would effectively eliminate paper-based filing by requiring all returns to be submitted electronically.

The bill further introduces an "algorithmic settlement mechanism" under which taxpayers who agree to automated settlement procedures would be allowed to file revised returns without obtaining prior approval from a tax commissioner.

Taxpayers opting for the mechanism would also be exempt from separate penalties and surcharges associated with the settlement process, according to the draft legislation.

The measures are part of a broader government effort to modernize tax administration, improve compliance and increase revenue collection through greater use of digital technologies.