Further tax on sales to unregistered persons is a 4% levy that a registered seller in Pakistan must add on top of the standard 18% sales tax whenever the buyer does not appear on the Federal Board of Revenue’s Active Taxpayer List. It sits in Section 3(1A) of the Sales Tax Act, 1990, and its purpose is to make purchases more expensive for anyone operating outside FBR’s direct oversight, pushing them into the formal system. Since the Finance Act 2024, the trigger has broadened well beyond buyers who simply lack a sales tax registration.
When the 4% Applies
Section 3(1A) requires every registered person making a taxable supply to charge further tax at 4% of the value of the supply when the buyer is not an active taxpayer.1Federal Board of Revenue. The Sales Tax Act, 1990 – Updated up to 2025-26 The 4% is collected on top of the standard 18% rate.
Before the Finance Act 2024, further tax was triggered only when the buyer was not registered for sales tax. The 2024 amendment changed the test: the question now is whether the buyer appears on FBR’s Active Taxpayer List, not whether the buyer holds a registration number.2Federal Board of Revenue. Circular No. 01 of 2024-25 A business that is technically registered but has fallen behind on filing its income tax return can drop off the ATL, and every sale made to that business during the inactive period attracts the 4% charge. The change catches a much wider group of buyers than the old rule did.
Checking a Buyer’s Active Taxpayer Status
Responsibility for confirming ATL status sits with the seller. FBR provides an online verification tool on the IRIS portal where you can check a buyer’s status by entering their National Tax Number, CNIC, passport number, or registration number along with the relevant date.3Federal Board of Revenue. IRIS 2.0 – Active Taxpayer List Verification The system returns a real-time result.
Save or print that result and keep it with the invoice. If FBR later audits the transaction and the buyer turns out to have been inactive, a dated verification showing the buyer was on the ATL when you sold to them is your primary defense against being made liable for the uncollected further tax.
Supplies and Buyers That Are Exempt
Section 3(1A) authorizes the Federal Government to notify supplies and categories of persons that are exempt from further tax through official gazette notifications. Several SROs have carved out exemptions to prevent the levy from inflating the cost of essentials or catching transactions it was never meant to reach.
- Zero-rated goods under the Fifth Schedule, such as goods supplied to diplomats and diplomatic missions, raw materials supplied to export processing zones, and supplies made under the Duty and Tax Remission Rules.4Board of Investment Government of Pakistan. Incentives for Investors
- Sixth Schedule exempt goods, including unbranded dairy products, fresh fruits and vegetables, eggs, live animals, agricultural produce not subjected to further manufacturing, locally manufactured laptops, and newspapers.5Federal Board of Revenue. The Sales Tax Act, 1990 – Sixth Schedule
- Electrical energy and natural gas supplied to residential households, historically excluded under the relevant SRO notifications.
- Retail sales made directly to end-consumers for personal use rather than for resale or further processing.
Because these exemptions live in SRO notifications rather than the main statute, they can shift with each budget cycle. If you deal in goods near the edge of any of these categories, check the current notifications on FBR’s website before treating a sale as exempt.
Calculating Further Tax on an Invoice
The rate is 4% of the value of the taxable supply, calculated on the same base as the standard 18% sales tax rather than compounding on top of it.6Federal Board of Revenue. The Sales Tax Act, 1990 – Section 3(1A)
Take a sale of PKR 100,000 in goods to a buyer who is not on the ATL:
- Standard sales tax at 18%: PKR 18,000
- Further tax at 4%: PKR 4,000
- Total tax: PKR 22,000
- Total invoice: PKR 122,000
The buyer effectively pays 22% instead of 18%. Over a year of purchases, that gap adds up, which is exactly the pressure the law is designed to create. Further tax is also not adjustable as input tax credit for the buyer, so it becomes a permanent cost rather than a temporary cash outlay.
On the invoice itself, further tax should appear as a separate line so both parties can see how much of the total is standard sales tax and how much is the additional 4%. Section 23 already requires a serially numbered tax invoice with the supplier’s and buyer’s details, description and value of goods, and tax amounts.7Federal Board of Revenue. The Sales Tax Act, 1990 – Section 23 For supplies to unregistered distributors, the seller must also record the buyer’s CNIC or NTN on the invoice, a requirement in effect since August 2019. Payments made by debit card, credit card, or digital channels are exempt from the CNIC requirement.
Reporting It on the Monthly Return
Registered persons file monthly sales tax returns through FBR’s IRIS online portal, and further tax collected on supplies to inactive buyers is reported inside that return as part of the seller’s total output tax liability.8Federal Board of Revenue. Filing of New Sales Tax and Federal Excise Return – SOP Annexure C (sales data) is due by the 10th of the following month, payment by the 15th, and the full return by the 18th.9Federal Board of Revenue. File Sales Tax Return
All records and documents must be retained for six years after the end of the relevant tax period. If any proceedings are pending, including assessments, appeals, revisions, or alternative dispute resolution, keep the records until final resolution.10Federal Board of Revenue. The Sales Tax Act, 1990 – Section 24 Losing invoices or ATL verification printouts from a transaction five years back can turn an otherwise clean audit into a costly reassessment.
Penalties for Getting It Wrong
A seller who fails to collect and deposit further tax faces penalties under Section 33. The penalty for failing to deposit tax due is PKR 10,000 or 5% of the tax involved, whichever is higher. If the amount is paid within ten days of the due date, the penalty drops to PKR 500 per day of default.11Federal Board of Revenue. The Sales Tax Act, 1990 – Section 33 A first miscalculation during a tax year does not attract a penalty, but that grace disappears after the first occurrence.
If the tax remains unpaid 60 days after a formal notice from an officer of Inland Revenue, the consequences escalate. On conviction by a Special Judge, the defaulter can face imprisonment of up to three years, a fine equal to the full amount of tax involved, or both.
Section 34 adds a default surcharge on any unpaid or late-paid tax at KIBOR plus 3% per annum, calculated from the 16th day of the month following the due date until the day before actual payment.12Federal Board of Revenue. The Sales Tax Act, 1990 – Section 34 For tax fraud cases, the rate is 2% per month of the evaded amount. KIBOR moves with market conditions, so the effective rate shifts, but the compounding effect means even a few months of delay can significantly increase what is owed.
How Buyers Can Avoid the 4% Charge
The simplest way to eliminate further tax on purchases is to register for sales tax and stay on the Active Taxpayer List. Registration goes through the IRIS portal, and only persons with active IRIS credentials can complete the process.13Federal Board of Revenue. Register for Sales Tax Once registered, you receive a Sales Tax Registration Number and login credentials for e-filing.
After the Finance Act 2024, registration on its own is no longer enough. You also have to keep your ATL status active by filing income tax returns on time. Miss a filing deadline and you drop off the ATL, and every purchase you make during the inactive period will carry the extra 4%. You can restore active status by filing the overdue returns, but any further tax already paid while you were off the list is not refundable. For a business making large volumes of purchases, even a brief lapse can create a substantial and unrecoverable cost.