Pakistan moves to sharply raise tax penalties for non-compliance

Pakistan's government has proposed a sweeping overhaul of tax penalties and Active Taxpayers List surcharges in the Finance Bill 2026-27, sharply raising the cost of non-compliance for individuals, companies, government bodies and withholding agents.

The changes form part of a broader push to boost revenue and improve economic documentation in fiscal year 2026-27.

What are the new ATL surcharges proposed in the Finance Bill 2026-27?

Taxpayers who fail to file income tax returns by the due date would face significantly higher ATL surcharges under the proposed changes. The surcharge for companies would rise fivefold to PKR100,000 from PKR20,000, while for associations of persons it would increase to PKR50,000 from PKR10,000. Individual taxpayers would face a surcharge of PKR25,000, up from the current PKR1,000.

What penalties are proposed for digital non-compliance?

Any person failing to install, operate or maintain prescribed electronic systems for recording transaction data would face a penalty of PKR1 million for the first offence and PKR2 million for each subsequent violation. Tampering with or bypassing such systems would attract the same penalties. The FBR has framed these measures as central to enforcing digital integration across businesses.

Government institutions and other entities designated as integrated organisations under tax law would face penalties for failing to link their IT systems with FBR interfaces, share required data or appoint focal persons. Principal officers in such bodies would be liable to PKR500,000 for the first default and PKR1 million for repeat violations. The term "principal officer" has been broadly defined to include chief executives, chairpersons, managing directors, secretaries and senior compliance or IT officials.

How would late filing penalties change under the new proposals?

Under the revised framework, "tax payable" for penalty calculation would be defined as the higher of tax determined through assessment or the highest tax payable in any of the previous three tax years for which returns were filed. This definition could significantly increase penalties for repeat non-filers. The bill also targets excessive withholding tax credit claims, proposing penalties where taxpayers claim credits exceeding amounts verified through FBR systems.

Tax audit enforcement has been tightened separately, with penalties for failing to produce records under Section 177 rising to PKR100,000, PKR200,000 and PKR300,000 for first, second and third notices, up from PKR25,000, PKR50,000 and PKR100,000 respectively.

What other penalty increases are included in the Finance Bill?

The bill proposes raising the penalty for providing false or misleading information to PKR500,000 or 100% of the tax shortfall, whichever is higher, up from PKR25,000 or 50% of the shortfall. Failure to deduct, collect or deposit withholding taxes would attract a minimum penalty of PKR500,000 or 10% of the tax involved, compared with the existing minimum of PKR40,000. In the case of companies, principal officers would also face an additional personal penalty of PKR500,000.

Penalties for incomplete disclosure with income tax returns have been extended to all taxpayers, including individuals, with a fine of PKR500,000 or 10% of taxable income chargeable, whichever is higher. The bill further clarifies that audited financial statements submitted in unreadable formats, including image files, scanned copies or password-protected documents, would be treated as incomplete submissions. The measures collectively reflect the government's intent to enforce compliance through significantly higher financial consequences for defaults.