Islamabad: The federal government has proposed substantial increases in penalties for late tax return filings and non-compliance under the Finance Bill 2026, targeting both income tax and sales tax defaulters. The proposed amendments aim to strengthen tax compliance, improve enforcement, and update penalty amounts that have remained unchanged for years.
According to the Finance Bill 2026, the revised penalties are intended to serve as a stronger deterrent against non-filers and late filers while encouraging timely submission of tax returns and statements.
Higher Penalties for Income Tax Late Filers
One of the most significant changes relates to taxpayers seeking inclusion in the Active Taxpayers List (ATL).
The Finance Bill proposes substantial increases in the fixed penalties payable under Section 182A of the Income Tax Ordinance, 2001 for taxpayers who file their returns after the due date and wish to become eligible for ATL status.
Under the proposed amendments:
- A penalty of Rs. 20,000 is proposed to increase to Rs. 100,000
- A penalty of Rs. 10,000 is proposed to increase to Rs. 50,000
- A penalty of Rs. 1,000 is proposed to increase to Rs. 25,000
The revised amounts represent increases of up to 2,400 percent in certain categories, reflecting the government’s tougher stance on tax compliance.
New Method for Calculating Return Filing Penalties
The Finance Bill also proposes a significant change in the calculation of penalties for failure to furnish income tax returns under Section 182.
Currently, penalties are linked to the tax payable for the relevant tax year. However, under the proposed amendment, the term “tax payable” will be redefined as the higher of:
- Tax chargeable on the taxpayer’s taxable income for the current tax year; or
- The highest amount of tax payable by the taxpayer in any of the three immediately preceding tax years.
This change could result in significantly higher penalties for taxpayers with a history of substantial tax liabilities.
Sales Tax Return Penalties Also Increased
The Finance Bill 2026 also introduces stricter penalties for late filing of sales tax returns under Section 33 of the Sales Tax Act, 1990.
Fixed Penalty Raised Fivefold
The fixed penalty for failing to furnish a sales tax return by the due date is proposed to increase from:
Rs. 10,000 to Rs. 50,000
This represents a 400 percent increase in the base penalty amount.
Daily Default Penalty Doubled
For taxpayers who continue to default beyond fifteen days after the due date, the daily penalty is proposed to increase from:
Rs. 500 per day to Rs. 1,000 per day
The increase is aimed at discouraging prolonged non-compliance and encouraging prompt filing of outstanding returns.
Government Seeks Stronger Tax Compliance
The proposed amendments form part of the government’s broader strategy to improve tax administration, increase documentation of the economy, and enhance revenue collection.
Tax experts believe the higher penalties will place greater pressure on taxpayers to file returns within prescribed deadlines and maintain compliance under both income tax and sales tax laws.
If approved by Parliament, the revised penalty structure will become effective from Tax Year 2026 and will impact individuals, associations of persons, and corporate taxpayers across Pakistan.
Key Highlights
✔ ATL late-filing penalties increased up to five times
✔ Some penalty categories rise from Rs. 1,000 to Rs. 25,000
✔ New formula introduced for calculating income tax return penalties
✔ Sales tax late-filing penalty increased from Rs. 10,000 to Rs. 50,000
✔ Daily sales tax default penalty doubled to Rs. 1,000 per day
✔ Measures aimed at improving tax compliance and documentation
