By SKM
June 17, 2026
ISLAMABAD: Pakistan’s largest export-oriented industry has launched a strong attack on the Federal Board of Revenue’s proposed sales tax enforcement regime, warning that controversial provisions introduced through the Finance Bill 2026 could expose thousands of genuine businesses to penalties, recovery proceedings and litigation for actions committed by suppliers over whom they have no control.
In a detailed representation submitted to FBR Chairman Rashid Mahmood Langrial, the All Pakistan Textile Mills Association (APTMA) argued that the proposed amendments to Section 33 of the Sales Tax Act, 1990, effectively reverse fundamental principles of tax administration by treating compliant taxpayers and fraudulent operators alike. The association warned that if enacted in their present form, the measures could create widespread uncertainty for businesses, undermine confidence in FBR’s own digital tax systems and significantly increase the cost of doing business in Pakistan.
The textile industry’s intervention comes at a time when the government is seeking to tighten tax enforcement and crack down on fake invoicing through the Finance Bill 2026. While APTMA reiterated its full support for efforts to eliminate tax fraud, curb fake invoices and strengthen documentation of the economy, it maintained that the proposed framework goes far beyond targeting tax evaders and instead places an unfair burden on businesses that have complied with every legal requirement.
According to the representation signed by APTMA Chairman Kamran Arshad, the proposed insertion of Serial Nos. 30 and 31 into Section 33 could expose law-abiding taxpayers to severe financial consequences despite having acted in good faith. The association warned that businesses could face reversal of input tax, payment of default surcharge and substantial penalties even where they have received actual goods, obtained valid tax invoices, made payments through documented banking channels and complied with all applicable provisions of tax law.
APTMA argued that the proposals ignore long-established legal principles repeatedly recognized by superior courts. The association noted that courts have consistently held that penal consequences should ordinarily be imposed only where there is evidence of fraud, collusion, deliberate concealment, wilful misstatement or conscious participation in tax evasion. The proposed provisions, however, make little distinction between a taxpayer knowingly involved in fraud and one who has fulfilled all statutory obligations and relied on information available through FBR’s own computerized systems.
The association cautioned that the practical effect of the amendments would be to expose innocent taxpayers to the same treatment as deliberate tax offenders. “The burden of combating fraud should fall on those responsible for the fraud, not on genuine businesses that have complied with the law,” APTMA maintained in its representation.
A major source of concern for the industry is the apparent contradiction between the proposed penalties and FBR’s technology-driven compliance framework. Under the STRIVE system and the existing electronic invoice verification regime, businesses are permitted to claim input tax only where the supplier’s invoice is reflected in FBR’s computerized database. Taxpayers therefore rely on information generated, processed and validated through the tax authority’s own infrastructure before claiming input tax.
APTMA argued that once an invoice has been accepted and reflected within FBR’s system, a purchaser has every reason to believe that the transaction satisfies legal requirements. Yet under the proposed amendments, the same taxpayer could later be penalized because of a mismatch, amendment, omission or reporting failure attributable to the supplier. Industry representatives warned that such an approach effectively destroys the certainty that digital verification systems were designed to provide.
“If taxpayers cannot rely on invoices validated through FBR’s own systems, then the very purpose of electronic verification comes into question,” a senior industry source observed while commenting on the proposed changes.
Particular concern has been expressed over proposed Serial No. 30. Under the proposed provision, where input tax claimed by a registered person cannot subsequently be matched with the supplier’s output tax declaration, the taxpayer may become liable not only for reversal of input tax and payment of default surcharge but also for an additional penalty equivalent to 20 percent of the unmatched amount.
APTMA described this provision as excessively harsh and disconnected from commercial realities. The association pointed out that invoice mismatches frequently occur due to timing differences in filing returns, amendments to declarations, clerical mistakes, data migration problems, software glitches and supplier-side reporting errors. Such discrepancies are common in large-scale manufacturing operations involving thousands of transactions and do not necessarily indicate fraud or tax evasion.
Despite this reality, the proposed provision could expose businesses to substantial financial liabilities even where transactions are genuine and fully documented. According to APTMA, taxpayers who have acted lawfully throughout the process may still find themselves paying tax, surcharge and penalties because of factors entirely beyond their control.
The association has therefore proposed an amendment requiring that any confirmation resulting in a penalty should only become enforceable after being upheld up to the stage of the Appellate Tribunal. APTMA believes such a safeguard would ensure that taxpayers are not penalized merely on the basis of an initial departmental allegation and would align the law with principles repeatedly recognized by superior courts.
However, it is proposed Serial No. 31 that has triggered the strongest reaction from the textile industry. APTMA described the proposed clause as fundamentally flawed because it effectively transfers responsibility for supplier misconduct onto purchasers. Under the proposal, businesses could face recovery proceedings and penalties where a supplier is subsequently placed on the Simulated Invoice Issuers Register, even if the purchaser had fully complied with all legal requirements at the time of the transaction.
The association noted that a taxpayer may have received the goods, verified the tax invoice, complied with Section 73 of the Sales Tax Act, made payment through banking channels, recorded the transaction in its books of account and lawfully claimed input tax. Yet despite fulfilling every statutory obligation, the taxpayer could remain exposed to future recovery actions if the supplier is later accused of irregularities.
Industry leaders argue that such an approach creates an impossible compliance burden. Businesses dealing with hundreds of suppliers and processing thousands of transactions every month would effectively be required to continuously monitor the future compliance status of all suppliers long after transactions have been completed. They would also be compelled to revisit closed transactions, conduct repeated compliance reviews and establish costly monitoring systems simply to protect themselves from future liabilities arising from the actions of third parties.
For Pakistan’s textile sector, which contributes the bulk of the country’s exports and operates through extensive supply chains, the implications could be particularly severe. Industry representatives fear that the measure could disrupt procurement decisions, increase compliance costs, delay commercial transactions and discourage legitimate business activity at a time when exporters are already grappling with rising operational costs and intense international competition.
APTMA further warned that the proposal could unleash a new wave of tax litigation. Businesses facing penalties for supplier-related issues are expected to challenge such actions before appellate forums and courts, potentially creating years of legal disputes and adding to the already substantial burden on the tax adjudication system.
Beyond commercial concerns, the association also raised serious constitutional objections. The representation points out that proposed Serial No. 31 does not expressly provide for issuance of a show-cause notice or an opportunity of hearing before adverse action is taken against a taxpayer. According to APTMA, this omission violates the universally recognized principle of audi alteram partem, under which no person should be condemned or penalized without being afforded an opportunity to defend themselves.
The association further argued that the proposal appears inconsistent with Article 10-A of the Constitution, which guarantees the right to a fair trial and due process. Legal experts believe that if enacted without adequate safeguards, the provision could face significant constitutional challenges.
In its concluding remarks, APTMA urged the government to withdraw proposed Serial No. 31 in its entirety and amend Serial No. 30 to incorporate meaningful safeguards for genuine taxpayers. While reaffirming support for the government’s anti-fraud agenda, the association cautioned that enforcement measures must target actual perpetrators of tax fraud rather than businesses that have complied with the law and relied on FBR’s own systems.
The textile industry’s warning is likely to intensify the debate surrounding the Finance Bill 2026 as lawmakers, tax practitioners and business groups examine whether the proposed anti-fraud measures strike an appropriate balance between revenue protection and taxpayer rights. For now, APTMA’s message to policymakers is clear: efforts to combat tax fraud should not come at the expense of businesses that have followed the rules, paid their taxes and acted in good faith. Ends
