20% Penalty Imposed on Taxpayers Over Incorrect Input Tax Claims

ISLAMABAD:Under the Finance Act 2026-27, taxpayers will be required to pay a 20 percent penalty in addition to repayment of the principal tax amount and default surcharge for claiming incorrect or mismatched input tax credits.

A 20 percent penalty has also been introduced for failure to repay tax credit claimed through fake invoices within 60 days.

According to the Finance Act, if the Federal Board of Revenue’s (FBR) computerized system detects that input tax credit claimed by a registered person for a tax period does not match the output tax declared by the relevant supplier during the same or a nearby tax period, the taxpayer may be required to explain the discrepancy.

After issuing a notice and providing the taxpayer an opportunity to submit an explanation and appear for a hearing, if the discrepancy is confirmed, the registered person will have to repay the inadmissible input tax credit.

In addition, the taxpayer will be required to pay a penalty equivalent to 20 percent of the mismatched input tax amount, along with default surcharge under Section 34 of the Income Tax Act.

The measure is aimed at curbing incorrect input tax claims and the use of fake invoices in the tax system.