ISLAMABAD: The Finance Bill 2026 has proposed significant amendments to Section 25 of the Sales Tax Act, 1990, granting Inland Revenue authorities enhanced powers in sales tax audit proceedings and introducing new compliance requirements for registered taxpayers.
Tax experts say the proposed changes are aimed at strengthening audit mechanisms, improving documentation, and enabling more detailed scrutiny of businesses with complex financial records and high transaction volumes.
Commissioner Empowered to Order Re-Audits
One of the most notable amendments is the insertion of a new sub-section 8A, which authorizes the Commissioner Inland Revenue, with prior approval from the Chief Commissioner, to order a re-audit of a taxpayer’s accounts or a revaluation of inventory in specified cases.
Under the proposal, such action may be taken where:
Accounts are considered complex.
Transaction volumes are unusually high.
There are doubts regarding the accuracy or completeness of records.
Multiple or intricate transactions are involved.
The business operates in specialized sectors requiring technical examination.
The re-audit will be conducted by an accountant, while inventory revaluation will be carried out by a cost accountant nominated by the Commissioner from a panel approved by the Federal Board of Revenue (FBR).
Mandatory Audit Reports Introduced
The Finance Bill also proposes a new sub-section 8B, requiring Inland Revenue officers to issue a formal audit report upon completion of an audit.
Before finalizing the report, the officer must obtain and consider the taxpayer’s explanation regarding all audit observations.
The audit report will contain detailed findings, observations, and conclusions arising from the audit process, providing a more structured framework for audit proceedings.
Changes in Audit Completion Procedures
As a consequence of the new reporting requirement, amendments have also been proposed to sub-sections (9) and (11) of Section 25.
The existing reference to the “completion of audit” has been replaced with the phrase “issuance of the audit report,” making the audit report the formal milestone for concluding audit proceedings.
Tax professionals believe this change could provide greater clarity regarding the status and outcome of audits.
Relief in Tax Payment Requirement During Audits
The Finance Bill has also proposed easing certain payment requirements during audit-related proceedings.
Under the revised provisions, taxpayers will no longer be required to deposit the entire disputed amount in specific circumstances. Instead, the payment threshold has been reduced to 50 percent of the amount involved, providing partial relief to businesses facing audit adjustments.
The amendment is expected to reduce the immediate financial burden on taxpayers while disputes remain under review.
Experts Raise Concerns Over Undefined Term
Despite supporting efforts to strengthen audit procedures, tax experts have highlighted a potential ambiguity in the proposed law.
They noted that the term “accountant” has not been specifically defined in the Finance Bill, raising questions regarding eligibility criteria and professional qualifications for conducting re-audits.
Experts have also suggested that regulators should clarify whether accountants nominated under the proposed provision are legally permitted under their professional by-laws and regulatory framework to undertake re-audit assignments.
Major Shift in Sales Tax Audit Framework
The proposed amendments represent a significant expansion of the FBR’s audit powers and form part of the government’s broader effort to enhance tax enforcement and compliance through the Finance Bill 2026.
If approved by Parliament, the changes will introduce a more formalized audit process, empower tax authorities to seek independent re-examination of records, and increase scrutiny of businesses deemed to present higher compliance risks.
