ISLAMABAD: The Federal Board of Revenue (FBR) has decided to publicly disclose the names and sales tax registration numbers of persons found involved in issuing fictitious or fake sales tax invoices, while introducing automatic reversal of input tax claimed against invoices issued by blacklisted entities.
According to instructions issued by the FBR to its field formations, a new penalty clause has been inserted to curb the use of fake and flying invoices and strengthen enforcement across the sales tax supply chain.
Under the newly inserted Clause (29), where it is established after issuance of a notice and adjudication that a registered person has issued a tax invoice for a simulated or fictitious transaction, or where no actual supply of goods or services has taken place, the person will face a penalty equal to the value of the simulated or fictitious invoice, including sales tax.
In addition to the financial penalty, the name and sales tax registration number of the person issuing such fictitious invoices will be placed on a publicly accessible “Simulated Invoice Issuers Register” maintained by the FBR.
The measure is aimed at publicly identifying businesses and individuals found to have issued fake invoices and preventing such entities from being used as a source for creating inadmissible input tax claims elsewhere in the supply chain.
The FBR has also introduced a direct consequence for registered persons claiming input tax against invoices issued by an entity placed on the register. Input tax credit claimed against invoices issued by a listed person will be automatically reversed from the date of listing.
Such input tax will be treated as inadmissible, requiring the registered person claiming the credit to bear the resulting tax liability.
The FBR has made removal of an invoice issuer from the register conditional upon full payment of the applicable penalty and default surcharge, besides satisfactory demonstration of compliance with the relevant tax requirements.
The new mechanism is expected to increase the financial and reputational consequences for businesses involved in fictitious transactions while also making it more difficult for other registered persons to continue claiming tax benefits through invoices issued by such entities.
The FBR has also introduced another provision aimed at ensuring that input tax claims correspond with actual output tax declarations by suppliers.
Under newly inserted Clause (30), where it is confirmed after issuance of notice and provision of an opportunity of being heard that input tax credit claimed by a registered person for any tax period cannot be matched with the corresponding output tax declared by the supplier for the same or a proximate tax period, as identified through the FBR’s computerised system, the claimant will face an additional penalty.
The penalty will amount to 20 percent of the unmatched input tax, in addition to reversal of the inadmissible input tax credit and payment of default surcharge under Section 34.
The provision effectively places greater responsibility on businesses claiming input tax to ensure that their purchase invoices correspond with genuine transactions and the supplier’s declared sales tax position.
The FBR has further inserted Clause (31) in Section 33, under which a registered person who fails to reverse input tax claimed against invoices issued by a person placed on the Simulated Invoice Issuers Register will also face a penalty.
The registered person will be required to reverse such input tax as inadmissible within 60 days of the invoice issuer being listed on the register.
The new provisions represent a broader shift towards using the FBR’s computerised tax systems to identify mismatches, trace suspicious transactions and prevent fraudulent input tax adjustments across interconnected businesses.
By combining public disclosure, financial penalties, automatic reversal of input tax and additional penalties for non-compliance, the FBR has sought to tighten controls over fictitious invoicing and improve the integrity of the sales tax chain.
The measures could have a significant impact on businesses because an invoice issued by a person subsequently placed on the Simulated Invoice Issuers Register could trigger automatic reversal of input tax claimed by other registered persons from the date of listing.
The new enforcement framework also increases the importance for registered businesses of conducting proper due diligence on suppliers and maintaining documentary evidence of genuine supplies, particularly where input tax credit is claimed.