Integration failure: FBR starts suspending sales tax registrations

The Federal Board of Revenue (FBR) in Pakistan has initiated the suspension of sales tax registrations for corporations and non-corporate taxpayers who have not integrated their businesses with the FBR's electronic invoicing system. This action follows failure to meet prescribed integration deadlines. Tax experts have expressed concerns that the FBR may be using a powerful enforcement tool too frequently.

Arshad Shehzad, a senior tax expert, noted that the power to suspend sales tax registrations under section 21 of the Sales Tax Act 1990 is designed for exceptional cases, primarily to prevent fake invoicing, tax fraud, and misuse of input tax credit in the supply chain. The expert argued that suspension should not be a routine response to non-compliance but should be reserved for cases meeting the legal criteria for such extraordinary measures.

The expert highlighted that while the power to suspend a registration carries serious commercial consequences, failure to integrate with the electronic invoicing system is subject to specific penalties under the Sales Tax Act. The expert warned that the suspension of a registration can disrupt a taxpayer's business and affect the ability of customers to claim input tax credit, potentially impacting the wider supply chain.

According to the law, the Commissioner may suspend a registration under section 21 in specified circumstances. The law also provides a mechanism for issuing a show-cause notice and giving the taxpayer an opportunity to be heard before further action. The expert emphasized that careful consideration must be given to whether the suspension is a proportionate response to the non-compliance or an overreaction that could have broader economic implications.

The tax expert cautioned against conflating e-invoicing non-compliance with tax fraud. He stressed that while non-integration may be a statutory default attracting penalties under section 33 of the Sales Tax Act, it should not automatically be considered fake invoicing or tax fraud without meeting relevant legal requirements. The issue is becoming more critical as the FBR accelerates enforcement of the electronic invoicing regime following the expiration of the integration deadlines for various categories of taxpayers.