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Circular No. 01 of 2026 (Sales Tax & Federal Excise) — record

Circular No. 01 of 2026 is FBR’s explanation of the important amendments the Finance Act 2026 made in the Sales Tax Act 1990 and the Federal Excise Act 2005. The thread running through it is digitalization and enforcement: a faceless regime for sales tax audit, assessment and appeals; an algorithmic settlement mechanism; mandatory FBR-numbered invoices for exempt supplies and advance receipts; production monitoring with seizure powers behind it; and a substantially harder penalty regime for fake and unmatched invoices.

For retailers, the Tier-1 definition now turns on declared turnover above Rs. 200 million (the point-of-sale trigger is gone). For the supply chain, the new “Simulated Invoice Issuers Register” matters: input tax claimed on invoices from a listed issuer reverses automatically, and failing to reverse it within sixty days costs a further 20% penalty, as does input tax that the Board’s system cannot match to a supplier’s output tax.

On the FED side, the Act introduces a special excise duty on imported vehicles through a new Table-1A, rationalizes duty on air travel and acetate tow, imposes duty on luxury electric vehicles, and extends the EV exemptions by a year.

Key changes — Sales Tax Act 1990

  • New definitions for advance receipt invoice, algorithmic settlement mechanism, electronic invoicing system, National Faceless Centre and production monitoring system.
  • Tier-1 retailer [s 2(43A)]: wholesaler-cum-retailer sub-clause now carries a turnover threshold above Rs. 200 million; the POS-acquisition trigger (sub-clause (f)) is omitted; new sub-clause (gb) covers declared turnover above Rs. 200 million or turnover worked back from section 236G/236H deductions; the Board may exclude persons by notification.
  • Valuation [s 2(46)]: the Board may use Pakistan Bureau of Statistics data and out-source valuation to third parties.
  • Steel sector [s 6(2)]: tax may be collected on monthly electricity units consumed, adjustable against output tax, with lower per-unit rates possible for compliant, digitally integrated melters, re-rollers and composite units (including captive-power units).
  • Input tax ratio [s 8B]: the Board may reduce or enhance the input tax adjustment ratio based on compliance with its digital systems.
  • Debit/credit notes [s 9]: the Board may prescribe a mechanism, including electronic adjustment.
  • Faceless regime [ss 2(17A), 11H, 30AA, 32C, 45C]: National Faceless Centre for sales tax; faceless audits under sections 25 and 72B with E-hearing and officer identity confidential; appeals under section 45B may be processed through the centre; faceless jurisdiction cannot be questioned merely on jurisdiction or confidentiality grounds.
  • Suspension [s 21(2)]: registration may be suspended for failure to integrate electronic invoicing or install production monitoring.
  • Invoices for exempt supplies [s 23(1)]: invoices now required for taxable and exempt supplies, including advance receipts, bearing a verifiable unique FBR invoice number.
  • Audit [s 25(8A), (8B)]: Commissioner may order re-audit by an accountant and inventory re-valuation by a cost accountant after a hearing; audit reports with observations and findings are now mandatory.
  • Directorate General (Field Compliance) [s 30DDDB] established for enforcement.
  • Penalties [s 33]: amounts rationalized overall. Substituted clause (25): Rs. 1 million for failure to integrate, up to Rs. 5 million a month later, with premises liable to sealing. New clause (29): penalty equal to the value of simulated or fictitious invoices including sales tax, plus listing on a public “Simulated Invoice Issuers Register”; input tax on a listed issuer’s invoices reverses automatically. New clause (30): 20% penalty on input tax that cannot be matched to the supplier’s output tax. New clause (31): 20% penalty for failing to reverse input tax from a listed issuer within 60 days.
  • Production monitoring and seizure [s 40C(2),(3),(6)]: goods may not be removed or sold without prescribed tax stamps, banderoles, stickers or labels monitored through a production monitoring system or video analytics; non-compliant goods and the conveyance used are liable to seizure and confiscation. New section 40F enables auction, including electronic auction, of confiscated goods.
  • Algorithmic settlement [ss 2(1AAA), 47AA]: digital settlement before orders under sections 11D or 11E via revision of return under section 26(3); offer accepted on IRIS within ten days; confronted issues abate.
  • Independent case scrutiny committee [s 47AAA]: references and appeals to the superior courts require prior approval of an independent committee (retired judge as chairman, advocate with 15+ years, senior FBR officer BS-20+, optional non-voting chartered accountant); recommendations bind the Commissioner; limitation time excluded.
  • Third Schedule: items expanded (retail-price taxation), with a Note ensuring rates higher than 18% continue after inclusion.
  • Sixth Schedule exemptions: wheat and rice bran (new S. No. 27A); magazines added to newsprint and books (S. No. 32); EV CKD kit exemption extended to 30 June 2027 (S. No. 157); aircraft import/lease extended to airlines registered in Pakistan (S. No. 181A); contraceptives exempted again; tampons exempted (S. No. 183); ship imports and ship-building plant and machinery restored; bullet-proof vehicles for the SCO summit and counter-terrorism; specified refinery-upgradation items with the Division’s prior approval.
  • Eighth Schedule: 1% reduced rate for specified EVs extended to 30 June 2027 (S. No. 71); electric trucks in CBU condition and electric buses added at the reduced rate (S. No. 80).
  • Ninth Schedule: sales tax on imported mobile phones payable in installments, all within the financial year of import.
  • Eleventh Schedule: AOPs and individuals join companies as withholding agents (5% of gross value of supplies from non-active taxpayers, S. No. 4); new S. No. 14 makes toll manufacturers withhold four times the tax charged on conversion charges for unregistered persons.
  • Twelfth Schedule: manufacturers who sell imported raw materials in the same state lose the value-addition-tax waiver and owe it with default surcharge; minimum value addition tax on imported coal supplied directly to IPPs reduced to 1%.

Key changes — Federal Excise Act 2005

  • New definitions mirroring the sales tax set (algorithmic settlement mechanism, electronic invoicing system, National Faceless Centre, production monitoring system).
  • Special excise duty [s 3(3B); Table-1A First Schedule]: imposed on listed goods — currently imported cars, SUVs and other motor vehicles — in addition to the duty under section 3(1), with collection mechanics to be prescribed.
  • Faceless audit and assessment [s 7A] through the faceless centre as provided in the Sales Tax Act.
  • Invoices [s 18(1)]: required for exempt supplies too, including advance receipts, with a verifiable unique FBR invoice number.
  • Offences [s 19(4)]: extended to production monitoring and video analytics violations (penalty unchanged: Rs. 75,000 or ten times the duty, whichever is higher; up to five years’ imprisonment).
  • Seizure and confiscation [ss 26(1), 27(1)]: removal of goods without electronic monitoring is liable to seizure along with the conveyance; outright confiscation and destruction extended beyond cigarettes and beverages to all goods required to be monitored.
  • Independent case scrutiny committee [s 34AA] — same design as the sales tax and income tax committees.
  • Monitoring powers [s 45A]: Board may prescribe electronic monitoring or tracking of production, sales, clearance or stock for any goods.
  • Audit [s 46]: advance written notice and a detailed audit report required; audit possible by video link; paying the evaded duty with default surcharge before a show-cause notice caps the penalty at 25% of the prescribed amount, and at 50% after the notice but before the assessment order; Commissioner may order re-audit and inventory re-valuation (new sub-section (3A)).
  • Acetate tow: FED reduced from Rs. 44,000 to Rs. 10,000 per kg.
  • E-liquids: rate raised to Rs. 16,500 per kg, at parity with heated tobacco mixtures.
  • Electric vehicles: FED exclusion for EVs extended to 30 June 2027; luxury EVs now dutiable at 30% (value above US$ 75,000 up to US$ 110,000) and 40% (above US$ 110,000).
  • Sports and electrolyte drinks meeting WHO sugar standards (≤ 5 g/100 ml) excluded from the 20% FED on sugary drinks.
  • Base lubricating oils charged 5% ad valorem FED at parity with lubricating oil.
  • Petroleum adulterants: FED at Rs. 80 per litre, in sales tax mode, on petroleum top naphtha, white spirit/mineral turpentine and solvent oil, with an exclusion mechanism for genuine industrial users; the same goods added to the Second Schedule so the duty is adjustable against output sales tax.
  • Foreign travel: fixed FED on club, business and first-class tickets rationalized to Rs. 50,000 (North America), Rs. 25,000 (Middle East), Rs. 40,000 (Europe) and Rs. 40,000 (Far East and Australia).
  • Strategic imports: duties and taxes exempted on bullet-proof vehicles for the SCO summit and counter-terrorism operations.
Our copy
sales-tax-circular-1-of-2026.pdf (700 KB, 15 pages)

Last reviewed 3 October 2026. This page records the contents of the circular as issued. Confirm the current position on IRIS or through FBR’s own channels before relying on this.

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