FBR’s IRS System Erroneously Marks Taxpayers as ‘Non-Active’

The Federal Board of Revenue’s (FBR) “IRS” system is reportedly misclassifying taxpayers as “non-active,” despite the recent extensions for filing sales tax returns in February and March 2025. This situation has generated unease within the business sector.

Numerous taxpayers have voiced their worries about being designated as “Inactive” due to the failure to submit their sales tax returns for two successive periods, resulting in needless difficulties.

It is apparent that the sales tax return system faces significant challenges following the implementation of several recent modifications. Consequently, the FBR prolonged the deadlines for submitting returns for February and March 2025.

Sales Tax, Federal Excise: FBR Extends Date of Filing Returns

Arshad Shehzad, a prominent sales tax expert based in Karachi, elucidated that the FBR has introduced obligatory prerequisites over the past few months, including an eight-digit Harmonized System (H.S.) code, units of measurement, and new annexures ‘H-1’, ‘J’, and ‘C-1’ in sales tax returns.

Shehzad clarified that taxpayers are now obligated to furnish an eight-digit H.S. code for each item sold. While this is relatively straightforward for imported goods, where taxpayers can easily reference the H.S. code from the import Goods Declaration (G/D), complications arise for domestically produced items. A significant number of manufacturers lack familiarity with the correct H.S. codes for their products. Furthermore, inconsistencies in H.S. codes reported by different suppliers for the same item generate considerable ambiguity among taxpayers.

Shehzad strongly suggests that the FBR should reorient its concentration from mandating specific H.S. codes to necessitating unambiguous descriptions of items. Subsequently, the system should automatically allocate the appropriate H.S. codes based on these descriptions, thereby alleviating the burden on taxpayers and guaranteeing uniformity.

Furthermore, he emphasized the problem of restricting unit of measurement reporting exclusively to kilograms (K.G). He firmly maintains that all units of measurement should be accessible in an electronic dropdown menu, eliminating unnecessary complexity. The tax authorities retain the prerogative to seek clarification on any unit of measurement issues at a later stage if necessary, rather than adhering to restrictive reporting mandates.

The implementation of Annex “J,” concerning production data, and Annex “H-1,” pertaining to stock reporting by entities other than manufacturers, should be executed in a phased manner. This strategy should encompass seminars and workshops to furnish the requisite education and assistance, instead of imposing these alterations abruptly during the tax year.