The Federal Board of Revenue (FBR) sends out various types of notices for compliance of taxes. These include all the regular requests, return filing, audits and recovery orders. Given below are the major types of FBR notices based on their purpose in the light of Income Tax Ordinance, 2001.

Types of FBR Notices in Pakistan

1. Registration and Return Notices

What Are the Main Types of FBR Notices in Pakistan?

As stated by Advocate Shahid (Best Tax Lawyer in Lahore). The most common types of FBR notices, that are issued in Pakistan are: notice for non-filing of income tax return, late filing notice, wealth statement notice, wealth reconciliation notice, notice for unexplained income or assets, bank transaction verification notice, audit notice, amended assessment notice, withholding tax notice, sales tax notice, show cause notice, penalty notice, tax demand notice, and recovery notice.

It is always best for a taxpayer to first read the notice in IRIS and review the section of law, review the tax year, compile supporting documents, and provide a timely and proper reply.

What Is an FBR Notice?

An “FBR notice” is an official letter issued by Federal Board of Revenue or by an authorized inland Revenue officer. It could request the taxpayer submit a form, notify the taxpayer of an imbalance, ask for documents, demand payment of taxes, ask the taxpayer to correct a filing, or request attendance at or reply to a lawsuit.

To put it simply, when you get a tax notice from FBR you don’t want to ignore it. Although the problem may be minor, the response (reply) should be carefully prepared, since such a response will be part of the taxpayer’s tax compliance history.

Why FBR Sends Notices to Taxpayers

Notices are sent by FBR for various purposes. The most common ones are non-filing of tax return, late filing, mismatch between declared income/expenditure, unaccounted income, mismatch in assets, bank deposit mismatch with the taxpayer’s profile, purchase of immovable asset/vehicle without any concomitant source of funds, mismatch in sales tax return, mismatch in withholding tax deduction, selection for audit and outstanding tax demand.

Is Every FBR Notice Serious?

All FBR notices are not equal. Some of them are compliance reminders, e.g., a reminder to file a return or a wealth statement. Others are more serious like, show cause notice, amended assessment notice, penalty notice or tax recovery notice.

The severity of the situation is dependent on the type of legal involvement, dollar amount, deadline, and tax year involved and if prior notices were disregarded.

Common Types of FBR Notices in Pakistan

1. FBR Notice for Non-Filing of Income Tax Return

This notice will typically be sent to a person who has an NTN, taxable income, business activities, property transactions, vehicle purchases, bank activities or withholding tax record but has yet to file an income tax return.

For instance, a person who is paid a salary could have an employer withhold taxes for him or her, but not file a tax return. A business owner could have sales and bank transactions that do not have a return recorded. In such circumstances, FBR might give a notice for the filing of an income tax return.

This means logging into IRIS, reviewing the appropriate tax year, completing the outstanding return, adding income and tax deduction information (where applicable) and responding to the notice task (if open). An internal link to an internal guide of how to file income tax return in Pakistan can be created if it isn’t known by the taxpayer.

2. FBR Notice for Late Filing of Return

A late filing notice might be sent to the taxpayer if he files late or doesn’t comply on time. ATL status can also be impacted due to late filing – the taxpayer may be inactive on the ATL for some time or withholding rates may be raised on certain transactions.

Practically speaking, a taxpayer should verify if the return was duly filed, if the right tax year was used and if a penalty/surcharge has been generated.

3. FBR Notice for Wealth Statement

A wealth statement notice is very usual for individuals. If the FBR does not receive a wealth statement or it is incomplete or does not match with the income return, FBR may request for filing or correction of the wealth statement.

A typical wealth statement will feature assets, liabilities, personal expenses, bank balances, property, vehicles, cash and investments and recon. of wealth. Even if the wealth statement is not reconciling, it can also cause problems with the return.

4. FBR Notice for Wealth Reconciliation

The one element that would be among the most sensitive for individuals is certainly wealth reconciliation. FBR can ask a taxpayer about the increase in the wealth of the taxpayer in a tax year.

Suppose that a taxpayer claims an annual income of, say, Rs. There is no problem if the figure is below 2 million, but if the amount of purchased cars, properties, bank balances etc. exceeds this figure, FBR may request an explanation. The taxpayer might have to produce payroll slips, business income statements, savings, loans and gifts, inheritance records or proof of foreign remittances.

5. FBR Notice for Undeclared Income

Where FBR thinks that the income is not declared properly, a notice is issued with regard to undeclared income. This could be business income, rental income, interest earned on bank accounts, self-employment income, commission income, capital gains and more.

6. FBR Notice for Unexplained Assets or Investment

Such notification may be sent where assets and/or investments seem to be greater than reported income. It can include purchasing of property, purchasing of vehicles, cash deposits, investing in business, etc. or foreign assets.

For instance, a taxpayer purchases a property, but the income they have declared to purchase the property is not commensurate with the property’s cost, FBR may inquire about the source of funds. The taxpayer might require to produce Sale Deed, Bank Statement, Gift Deed, Inheritance Record, Loan Agreement, Remittance Proof or Proof of past saving.

7. FBR Notice for Bank Deposits or Bank Transaction Verification

FBR may send a bank transaction verification notice if the amount of deposits or withdrawals/credits doesn’t correspond to the taxpayer’s profile. This is typical when taxpayers are getting paid for business in their personal accounts and/or don’t account for cash deposits.

If a salaried person makes big deposits to the bank account over and above his/her monthly salary, he may get such a notice. The answer should include an explanation to each of the major credits supported by documents like salary slip, tax deducted certificate, remittance receipts, evidence of family support or sale proceeds.

8. FBR Notice for Foreign Remittance

Foreign remittance notices are generally sent by FBR, when it desires to check the origin, originator, use and tax status of foreign funds. The taxpayer should retain bank credit advice, remittance receipt, creditor and relationship documentation/explanation of purpose.

While not all remittances are necessarily taxable, those that go against the grain or those that are not backed up can cause issues. Answer should be supported by facts and evidence.

9. FBR Audit Notice

FBR issues an Audit notice where the taxpayer’s record is picked up for audit or is required for audit. Some of the things that can be audited include income, income expenses, withholding tax, sales tax, bank accounts, invoices, books of accounts, ledgers and supporting evidence.

The officer can demand the purchase or sale invoices, bank statements, stock records, ledgers, trial balance, financial statements, tax challans and withholding certificates for business. The audit notice needs to be treated with utmost caution as faulty responses to the notice can trigger amended assessment and tax demand.

10. FBR Notice for Amended Assessment

FBR issues an amended assessment notice when it believes that there is a need to amend the assessment or original return. This could be for any reason such as concealment, wrong claim, incorrect tax calculation, undeclared income, mismatch in records, etc.

This type of notification is grave as it can lead to more tax liability, default surcharge & penalty. A casual reply by a taxpayer is not acceptable. The facts, law, documents and calculation should be well-prepared.

11. FBR Show Cause Notice

A show cause notice notifies the taxpayer of the action that is proposed and requests his or her explanation of why the action should not be taken. It could be associated with a tax demand, tax penalty, tax assessment, sales tax or a withholding default or non-compliance.

For instance, FBR may query that why, in case of failure to file a return, penalty should not be imposed or why input tax adjustment should not be disallowed. The reply of a strong show cause notice should give a straight response to the show cause notice and provide the documents and mention the legal position, if applicable.

12. FBR Penalty Notice

Non-filing, late filing, non-compliance, wrong declaration, failure to maintain records, failure to provide documents, sales tax default and withholding tax default are all grounds for a penalty notice. The penalty proceedings are generally related to certain provisions of the Income Tax Ordinance, 2001 or Sales Tax Act, 1990.

The taxpayer should review to determine if there was reasonable cause, the compliance, the correct calculation of the penalty, and the proper service of the notice.

13. FBR Tax Demand Notice

The tax demand notice indicates the amount that the taxpayer is required to pay. It can contain principal tax along with default surcharge, penalty/demand imposed on the basis of assessment proceedings.

A taxpayer should make sure that the tax liability calculation, the tax payment record, the CPRs and the withholding tax credit and any previous order is verified. In case the demand is incorrect, rectification and/or appeal and/or stay of recovery may be required for the taxpayer in light of the facts of each case.

14. FBR Recovery Notice

If tax demand is not paid, a recovery notice will be issued. This is the most severe notice of FBR in Pakistan as it may result in recovery proceedings, attachment of bank accounts, action on assets and even further legal action.

Once recovery has begun, the taxpayer should immediately check the order, demand, appeal status, limitation and payment record and available legal remedies.

15. FBR Sales Tax Notice

The sale tax notice is a common notice that is received by a registered business, manufacturer, importer, wholesaler, distributor, retailer or registered person. It can be regarding Sales Tax Registration, Sales Tax return mismatch, Input Tax Adjustment, Output Tax Liability, Fake invoice Allegation or Sales Tax Audit.

If your business or import/export activity is related to customs and import/export documents then internal resource like PSW Login Pakistan is also applicable for you as importer.

16. FBR Notice for Sales Tax Return Mismatch

An mismatch of sales tax return can occur when there is any mismatch between purchase invoice and supplier details, sales details, input tax claim/ output tax declaration. A supplier may issue an invoice for a supply but the business might choose to claim input tax adjustment on it because the supplier’s records do not support this claim.

Typically, documents that will be needed include Purchasing and Sales Invoices, Supplier Verification, Sales Tax returns, bank statements, stock records, CPRs and input/output tax working.

17. FBR Notice for Withholding Tax Default

Failure to deduct, deposit and report withholding tax can be subject to notices to be sent to withholding agents. This may be applicable for employers/companies/AOPs/Contractors/Service recipients/Property Buyers etc., who are withholding agents.

In case of notice to an association of persons, an internal link can be provided naturally with an article such as ‘AOP in pakistan‘ which will give an understanding of the legal and filing background.

18. Notice from Commissioner Inland Revenue

Commissioner Inland Revenue’s notice can be in relation to assessment, audit, enforcement, penalty, tax demand, records or withholding tax/compliance proceedings. It is important for the taxpayer to carefully read the authority, section, deadline and required action.

FBR Notices Under Income Tax Ordinance, 2001

The majority of the cases of income tax notices issued by FBR are based on the Income Tax Ordinance, 2001. Some of the commonly applicable sections are: section 111 (unexplained income/ assets/ investments), section 114 (filing of return), section 116 (statutory wealth statements), section 122 (amended assessments), section 176 (call for information/ documents) and section 177 (audit).

Most of these sections should be explained in layman’s terms within the article since most of the general public do not know how to interpret legalese. This is aimed at making it easier for them to recognise the topic of the notice and what they need to do.

FBR Notices Under Sales Tax Act, 1990

The common reasons for issuance of sales tax notices may be that there are some discrepancies in the filing of sales tax returns, non-registration, input tax adjustment, output tax liability, fake invoices, supplier mismatch, non-payment or audit record etc. with the registered business.

Sales Invoices, purchase invoices, stock records, bank statements, supplier details, sales tax returns and CPRs are some of the important sales documents a business should have. If the taxpayer’s business is a Partnership business, an internal link, like Registration Certificate for a Partnership Firm (Form C) can be helpful in a section of a document checklist.

PRA, SRB, KPRA and BRA Notices

FBR is responsible for federal taxes which include income tax, sales tax on goods and federal excise. Depending on the province, the provincial revenue authorities may be the ones to collect sales tax on services. These are the Punjab, Sindh, KPRA in Khyber Pakhtunkhwa and Balochistan.

A provincial notice can be for something like sales tax on service, return filing, penalty, show cause proceedings, registration issue or mismatch in service tax records. Taxpayer should check the notice whether it is issued by the FBR or Provincial authorities as the portal, law and reply procedure could be different.

How to Check FBR Notice Online in IRIS

To check an FBR notice online, log in to IRIS Portal with your NTN, CNIC/registration number and password. Next, click on the IRIS dashboard and look on the inbox, tasks or notices section. Carefully read the notice number, tax year, legal section, issuing officer, required action and deadline in the notice.

If the users are not aware of how to access to their IRIS account, then they can link a helpful internal article like FBR IRIS Login Guide.

Download and/or print the notice before responding. Take screenshots of the task, deadline and completed response for later on record.

How to Reply to FBR Notice in IRIS

The first thing to be done is to read the whole notice thoroughly. Determine what the legal section is, what the issue is, what the tax year is and the compliance deadline. Then write an explanation, citing documents.

In reply to a proper notice from FBR, the reply should contain name of taxpayer, his NTN/CNIC, No. of notice, date of notice, tax period, legal section, facts of the case, explanation and request for acceptance of explanation, dropping proceedings or correction of record and supporting documents.

Required Documents for FBR Notice Reply

The documents required depend upon the notice issued however general documents are CNIC, NTN details, income tax return, wealth statement, bank statements, salary certificate, withholding tax certificates, business records, sale and purchase agreement, vehicle documents, gift deed, inheritance documents, remittance proof, CPRs, tax challans and previous correspondence with FBR.

Documents for companies and businesses can be the books of accounts, ledgers, trial balance, financial statements, invoices, sales records, purchase records, stock records, withholding statements and sales tax returns.

Fees, Penalties and Expected Costs

This may include the following penalties such as late filing penalty, non-filing penalty, penalty for non-compliance, default surcharge, tax demand after assessment, penalty for incorrect declaration, sales tax default penalty, withholding tax default penalty.

The professional tax consultant or lawyer fee is dependent on the type of notice, tax year, complexity of records, the requirement for a hearing, the requirement for reply only, if appeal is required and if the tax matter is income tax or sales tax/provincial tax.

What Happens If You Ignore an FBR Notice?

Failure to act on an FBR notice can have legal and financial repercussions. FBR can act ex parte, make a best judgment assessment, issue tax demand, attach penalty and/or initiate recovery proceedings.

In certain instances, failure to respond to the initial notification will make the issue more complex as the taxpayer would not be able to provide details at the initial notification.

Common Mistakes to Avoid

Common errors are ignoring/notices, missing deadlines, giving vague reply, uploading incomplete documents, missing the legal section, giving reply for tax year different from the current, giving reply without evidence, failing to reconcile bank statements, not matching the income with the wealth statement, claiming input tax without valid invoice, taking advice too late.

Many taxpayers are making their case weaker by submitting emotional responses rather than fact-based, document backed responses, as a result of their practical experience.

Common IRIS and FBR Notice Errors With Solutions

In case the FBR notice is not appearing in IRIS, please verify the login, tax year, inbox, tasks or NTN/CNIC details. In the event of the matter persists reach out to the respective FBR office or helpline and in the event that IRIS returns a reply submission error, decrease the size of the documents, convert documents to PDF, rename the documents appropriately, verify internet connection and submit again before the deadline. Make screen shots if the portal error persists.

In the absence of CPR, check PSID, payment date and bank record for the CPR number. If no action is taken by ATL in the filed document, then tax year, return submission status and ATL update cycle is confirmed.

Appeal Options After FBR Order

In the event a taxpayer is in disagreement with an assessment, a penalty, demand or other order, an appeal may exist to an appropriate appeal forum. The first appeal is usually to Commissioner Appeals and the second appeal might then be to the Appellate Tribunal Inland Revenue.

Proper facts, grounds, documents, calculation of limitation and legal drafting are required in appeals. Even the best case can be hurt by a poor appeal, if a taxpayer has a valid appeal.

When Should You Hire a Tax Lawyer or Consultant?

Professional assistance is highly recommended in case of show cause proceedings, audit, amended assessment, unexplained income, bank deposits, sales tax mismatch, withholding tax default, tax demand, penalty, recovery and appeal in the notice.

A professional can examine the notice, determine the section of the law, draft an appropriate response, arrange paperwork, represent the taxpayer before the department and advise on the appeals process.

In case of need for professional support, Right Tax Advisor and Advocate Shahid can be introduced as anchors of services in review of the notice, preparing reply, guidance before the tax authorities and representation before tax authorities for submission of IRIS.

Official Portals and Department Guidance

To check records, file returns, verify Active Taxpayer List (ATL) status and to make tax payments and reply to notices, taxpayers should use the official channels. IRIS is the central point of contact for federal income tax-related issues. As per the provincial sales tax on services, taxpayers might need to have access to PRA, SRB, KPRA or BRA portals based on the province.

When responding to a notice, verify the source for the notice. Though a notice issued by the Federal Board of Revenue and a provincial revenue authority may seem to have similar purpose, there may be differences in the law, portal and procedure.

FAQs

What are the types of FBR notices in Pakistan?

There are basically six types of notice, namely, non-filing notice, late filing notice, wealth statement notice, audit notice, show cause notice and amended assessment notice, penalty notice, sales tax notice and withholding tax notice/recovery notice.

Why did I receive an FBR notice?

If the income mismatch, withholding tax default or audit selection or any of the above reason is the reason for an FBR notice, you should take its advice.

How can I check an FBR notice online?

To check FBR notice, please log into your IRIS and check the inbox, tasks or notices section of your IRIS. Make sure that you verify the notice number, tax year, legal section and deadline.

How do I reply to an FBR notice in IRIS?

Read the notice, draft a written explanation, include relevant documents and upload the response in IRIS and submit prior to compliance date.

What happens if I ignore an FBR notice?

Failure to respond to the notice by the FBR may result in ex parte proceedings, penalty, amended assessment, tax demand and default surcharge and recovery action (as per the case).

Can FBR issue notice for bank deposits?

Yes, FBR may request an explanation if bank deposits are not in accordance with the income tax return, wealth statement or taxpayer profile and income declaration.

Do I need a lawyer for an FBR notice?

If there are merely filing concerns, then maybe a tax specialist is sufficient. If it is a show cause notice, an audit, an amended assessment, a penalty or recovery or appeal case, it is highly recommended to get a tax lawyer.

Can I appeal against an FBR order?

Yes, you can appeal any assessment, penalty, demand or order, if you do not agree with it, before the appropriate appellate forum within the prescribed time frame.

Conclusion

FBR Notices in Pakistan are applicable to a multitude of areas such as return filing, wealth statement, undisclosed income, bank deposits, audit, sales tax, withholding tax and penalty and recovery. The safest way to deal with this is to read the notice thoroughly and make sure to understand the legal portion, gather documents and make a timely response via IRIS.

Professional guidance might be useful if the notice relates to serious tax demand, audit, amended assessment or penalty/recovery to ensure that your legal position is safeguarded and no unnecessary complications are created.