ISLAMABAD: The Federal Board of Revenue has begun suspending the sales tax registrations of corporate and non-corporate taxpayers who failed to integrate their businesses with the board's electronic invoicing system, as authorities move against those who missed prescribed integration deadlines.
The action has drawn concern from tax experts, who say the FBR may be applying a power meant for exceptional circumstances as a routine enforcement tool.
Arshad Shehzad, a senior tax expert, said the authority to suspend a sales tax registration under Section 21 of the Sales Tax Act, 1990, is an extraordinary measure primarily intended to protect the tax system against fake invoicing, tax fraud and the wrongful transfer of input tax credit through the supply chain.
"The concern is not that the FBR should not enforce e-invoicing. The concern is that a power carrying such serious commercial consequences should not become an ordinary administrative response to every instance of non-compliance," Shehzad said.
He noted that failure to integrate with the electronic invoicing system already carries specific penalties under the Sales Tax Act. He said authorities should distinguish between routine compliance defaults and circumstances that justify the exceptional power of suspension.
"Suspension of registration is not merely another penalty," Shehzad said. "It can disrupt the taxpayer's business and, more importantly, affect the ability of its customers to claim input tax credit. Therefore, its use has consequences extending beyond the taxpayer concerned and can potentially affect the wider supply chain."
Shehzad said that while the FBR has been granted substantial powers under Section 21 to address fake invoices and tax fraud, those powers should not be applied automatically.
"The extraordinary nature of the power lies precisely in its consequences," he said. "If suspension becomes the normal first response to a compliance failure, the distinction between a penalty for non-compliance and a regulatory measure aimed at combating tax fraud begins to disappear."
Under current law, a commissioner may suspend a sales tax registration under circumstances specified in Section 21. The law also requires a show-cause notice within a prescribed period and an opportunity for a hearing before further action is taken.
Shehzad said those procedural safeguards take on greater importance when suspension orders are issued on a large scale.
"The question is whether the statutory safeguards are being treated as a meaningful process or merely as a formality after the taxpayer has already suffered the consequences of suspension," he said.
He said the FBR should clearly inform taxpayers facing suspension of the specific basis for the action and give them an effective opportunity to demonstrate compliance, correct technical shortcomings or explain circumstances that may have delayed integration.
Shehzad also cautioned against equating e-invoicing non-compliance with tax fraud.
"Failure to integrate within a prescribed deadline may constitute a statutory default and may attract the prescribed penalty," he said. "But non-integration, by itself, should not automatically be equated with fake invoicing or tax fraud unless the facts satisfy the relevant legal requirements."
The distinction matters, experts say, because Section 33 of the Sales Tax Act sets specific penalties for failures related to electronic invoicing, while Section 21 addresses suspension and subsequent action in cases involving fake invoices and tax fraud.
Tax experts said the FBR's push toward digitization and documentation of the economy is understandable but should be applied proportionately and within a clear legal framework.
"The objective should be compliance, not simply suspension," Shehzad said. "Where a taxpayer can be brought into the system through a penalty, notice or corrective mechanism, resorting to an extraordinary power should remain a carefully considered decision."
The issue has gained prominence as the FBR steps up enforcement of the electronic invoicing regime following the expiration of integration deadlines for various categories of taxpayers.
While tax authorities are entitled to act against non-compliant taxpayers, experts said the credibility of the enforcement regime will ultimately depend not only on how firmly the law is enforced, but also on whether extraordinary powers are exercised with the restraint, proportionality and procedural discipline the law requires.
