THE decision by the Federal Board of Revenue (FBR) to increase the penalty for late filing of income tax returns from Rs1,000 to Rs25,000, effective July 1, has caused widespread concern among taxpayers. While encouraging timely compliance is a legitimate objective, a 25-fold increase in the penalty is excessive, disproportionate and inconsistent with the principles of fair taxation. The penalty is particularly coercive as the FBR’s portal itself remains unable to handle the routine September rush, forcing taxpayers to face unintended delays.

The previous penalty of Rs1,000 served as a reasonable deterrent without placing an unbearable burden on taxpayers. In contrast, imposing a Rs25,000 fine overnight — without any phased implementation or meaningful public consultation — risks penalising ordinary citizens rather than habitual tax evaders. The burden will fall most heavily on salaried employees, pensioners, freelancers and small business-owners. Many taxpayers submit returns late not because they intend to evade taxes, but due to technical issues with the FBR portal, lack of awareness, medical emergencies or procedural difficulties. In many cases, individuals with no tax liability who file Nil-returns could still face a penalty of Rs25,000 simply for missing the deadline. Such a measure is neither equitable nor proportionate.

Pakistan’s taxation system requires greater public confidence, voluntary compliance and a broader taxation base. Excessively punitive measures may discourage honest tax-payers, deepen the trust deficit between the citizens and the state, and ultimately undermine the very objective of increasing compliance. A more balanced approach would include a structured penalty mechanism; lower fines for first-time or inadvertent late filers, exemptions for Nil-return filers and senior citizens, and discretionary powers for tax authorities to waive penalties in cases involving genuine hardship or exceptional circumstances.

Mubasher Mir
Karachi

Published in Dawn, August 23rd, 2026