Introduction

As Pakistan moves deeper into the digital age, the Federal Board of Revenue (FBR) has implemented sweeping changes for sales tax returns in the fiscal year 2025–2026. These reforms aim to improve transparency, compliance, and ease of filing, while expanding enforcement tools and enhancing data-driven oversight. Here’s a comprehensive look at what businesses need to know.

E-Invoicing & Digital Integration

Mandatory E-Invoicing with QR Codes

Under S.R.O. 69 (I)/2025, dated January 29, 2025, businesses must use approved hardware and software to generate electronic invoices featuring unique identifiers, digital signatures, and scannable QR codes. All invoice data must be transmitted in real time to FBR.comarch.com
Systems are required to securely store this data for at least six years for audit purposes.comarch.com

Broader Expansion of E-Invoicing Requirements

On April 22, 2025, the FBR extended e-invoicing mandates beyond Fast-Moving Consumer Goods (FMCG) to all corporate and non-corporate registered persons. This expansion was set with deadlines: integration by May 1, 2025 for corporates and June 1, 2025 for non-corporates; later extended by approximately one month.

Enhanced Monthly Return Details

Through SRO No. 55(I)/2025 (dated January 24, 2025), significant changes were introduced to the monthly sales tax return forms.

• Manufacturers must now include Annexure J, listing goods by HS code, unit of measurement, opening stock, production, supplies, and closing stock (value and quantity).
• Importers, distributors, wholesalers must file Annexure H1, providing item-wise (HS code–based) quantity and value details for purchases, stocks, and supplies—all based on the cost or purchase price.
• These annexures became mandatory starting January 2025, impacting returns filed thereafter.

New E-Commerce & Withholding Responsibilities

The 2025–26 Finance Act introduced a transformative framework for e-commerce transactions:

• Who Collects Sales Tax?
  • Payment intermediaries (e.g., banks, payment gateways) are responsible for collecting and remitting tax on digital payments.
  • Courier services handling Cash on Delivery (CoD) are similarly tasked with collecting tax on behalf of sellers.
• Rates and Final Discharge of Tax Liability
  • Digital payments: tax is deducted at prescribed rates and constitutes final liability.
  • Cash on Delivery: tax collected by courier services also serves as the final discharge of tax liability, with no input tax adjustment permitted.
• Filing Requirements
  • Payment intermediaries and couriers must file withholding statements each quarter, detailing details such as vendor identification, invoice numbers, amounts, and tax deducted.
  • Online marketplaces must submit monthly statements including vendor names, addresses, tax registration numbers (Sales and Income Tax), along with turnover and deposit details.
• Registration Mandates
  • Vendors must hold both Sales Tax and Income Tax registration to operate on e-commerce platforms; marketplaces and couriers must block unregistered vendors from listing.
• Penalties for Non-Compliance
  • Permitting unregistered vendors: Rs 500,000 for the first offense, Rs 1,000,000 for subsequent.
  • Failure to collect or deposit withholding tax: 100% of the amount of tax involved.

Shift Toward Risk-Based Adjustments & Enforcement Enhancements

1. Input Tax Management
   • FBR may now defer or adjust input tax limits using risk-based assessments. Taxpayers can contest these actions, and commissioners must respond within 30 days.
2. Assessment Timelines and Best Judgment Assessments
   • Assessment periods under sections 11D, 11E, and 11F are extended from 120 to 180 days.
   • Where sales tax returns are not filed, assessing officers may apply best judgment assessment, using purchasing data to estimate value addition.
3. Compulsory Registration: Coercive Measures
   • FBR is empowered to bar individuals from using bank accounts, transferring property, or otherwise seal business operations if they fail to register under the Sales Tax Act.
   • Additional actions include sealing premises, seizing movable assets, or appointing a receiver. These measures require prior public notice and an open-court hearing with a committee.
4. Revisions of Returns Now Require Commissioner’s Approval
   • Unlike previous flexibility allowing revisions within 60 days, any return amendment now requires formal commissioner approval, regardless of impact.
5. Statutory Recognition of Experts, Auditors & E-Invoicing Provisions
   • FBR may now appoint external experts and auditors to assist with audits or valuations.
   • Statutory backing is being introduced for existing e-invoicing requirements under Chapters XIV and XIV-AA of the Sales Tax Rules, which had previously applied to Tier-1 retailers.

Phasing Out Exemptions & Price Control Measures

• Tribally Exempt Regions
  • Exemptions for the former ‘Tribal Areas’ are being phased out:
    • July 2025 – June 2026: 10% sales tax
    • Following years: rates rising to 12%, 14%, and eventually 16% by 2028–29.
• Other Notable Removals and Additions
  • Exemptions for solar panels have been removed.
  • FBR can now fix minimum retail prices (e.g., cement) through Gazette notifications; imported goods’ retail price must be at least 130% of their assessed customs value.
  • “Chilling charges” for beverages are standardized at 5% and codified in law.

Conclusion

Fiscal year 2025–2026 marks a pivotal shift in Pakistan’s sales tax regime—emphasizing digital compliance, enhancing transparency, and widening the tax net. Key takeaways for businesses:

• Ensure timely e-invoicing integration and adhere to record keeping.
• Prepare to file detailed Annexure J or H1 with every monthly return.
• Know if you’re a payment intermediary, courier, marketplace, or vendor: you may now carry significant withholding and reporting responsibilities.
• Stay compliant to avoid tough penalties and coercive enforcement.
• Monitor the gradual withdrawal of exemptions, especially in formerly exempt regions.

For businesses navigating this evolving landscape, investing in capable digital accounting systems and staying abreast of FBR updates will be essential to smooth compliance and risk management.