Taxpayers penalised despite FBR’s deadline extensions: KCCI

KARACHI: President of the Karachi Chamber of Commerce & Industry (KCCI) Muhammad Jawed Bilwani has expressed serious concern over the erroneous classification of taxpayers as ‘non-active’ by the Inland Revenue Service (IRS), despite the Federal Board of Revenue (FBR) having officially extended the deadlines for filing sales tax returns for February and March 2025.

“It is deeply troubling that numerous taxpayers are being unfairly labelled as inactive solely due to delays in filing returns for two consecutive periods, even though official extensions were granted,” stated Bilwani. “This is causing unnecessary difficulties for honest taxpayers who are already trying to comply with the ever-changing regulatory environment.”

Bilwani noted that the sales tax return filing system is under immense strain, largely due to a series of recent and abrupt changes. “The FBR’s decision to extend deadlines clearly reflects that the system is struggling to cope. Yet, instead of facilitating taxpayers, they are being penalised, which is counterproductive,” he emphasised.

Commenting on the technical difficulties faced by taxpayers, he pointed out that, in recent months, the FBR has introduced mandatory requirements such as eight-digit harmonised system (HS) codes, precise units of measurement, and several new annexures including ‘H-1’, ‘J’, and ‘C-1’ in sales tax returns.

He elaborated that, while imported goods can be easily linked with HS codes from goods declarations, local manufacturers are facing major challenges.

“Many local producers are simply unaware of the correct HS codes for their products. The same item being assigned different codes by different suppliers is creating unnecessary confusion and inconsistency,” he said.

Bilwani urged the FBR to reconsider its approach. “Instead of placing the burden of identifying specific HS codes on taxpayers, the system should allow them to describe the item, which can then be matched automatically to the appropriate code. This would reduce confusion and promote standardisation,” he suggested.

He also criticised the restriction of unit measurements to kilogrammes (kg) only. “This is highly impractical. A dropdown menu should offer all standard units of measurement. If needed, the tax department can always request clarification later, rather than enforcing rigid input criteria from the outset,” he proposed.

Addressing the abrupt implementation of new annexures, Bilwani cautioned: “Annex ‘J’, which relates to production data, and Annex ‘H-1’, concerning stock reporting by non-manufacturers, should not be enforced without warning. These changes should be phased in with appropriate educational support through seminars and workshops, rather than being imposed mid-year.” He also highlighted the inconsistency between the legal status of filing extensions and the system’s current enforcement. “It is legally inappropriate to declare a taxpayer inactive for failing to file returns during months for which official extensions have been granted. This mismatch between policy and system enforcement is deeply unfair and must be addressed immediately,” he asserted.

Bilwani also urged the FBR to adopt a more pragmatic, technology-driven and taxpayer-friendly approach. “The current system creates undue hardship for compliant businesses. Reforms must be introduced with proper planning, stakeholder consultation and support mechanisms to ensure fairness and the ease of doing business,” he said.