FBR to Impose 20% Penalty on Incorrect Input Tax Claims

Taxpayers who make incorrect or mismatched input tax claims will face a 20 per cent penalty under the Finance Act 2026-27.

They will also have to repay the disputed tax amount.

In addition, taxpayers will be liable for the applicable default surcharge.

The new rules aim to prevent misuse of Pakistan’s tax credit system.

20% penalty applies to mismatched claims

The Finance Act introduces a 20pc penalty on inadmissible input tax credit.

The penalty will apply when a taxpayer’s claimed credit does not match the tax declared by the supplier.

The Federal Board of Revenue (FBR) will use its computerised system to identify such cases.

The system will compare input tax claimed by a registered taxpayer with the supplier’s declared output tax.

The comparison will cover the same or a nearby tax period.

The FBR will first issue a notice to the taxpayer when it identifies a discrepancy.

The taxpayer will receive an opportunity to explain the mismatch.

Authorities will also provide a hearing before taking further action.

If the taxpayer fails to resolve the discrepancy, the FBR can require the reversal of the inadmissible input tax credit.

The taxpayer will then have to repay the disputed amount.

The new rules also target input tax credits claimed against fake invoices.

Taxpayers must repay such claims within 60 days.

Failure to repay the amount within that period will attract a 20pc penalty.

The taxpayer may also face the applicable default surcharge under Section 34 of the relevant tax law.

The measures seek to tighten monitoring of input tax claims.

The government aims to prevent taxpayers from obtaining improper tax benefits through incorrect claims.

The system will also help authorities detect the use of fake invoices.

The new provisions mark a tougher approach towards input tax claims and tax credit compliance under the Finance Act 2026-27.