KCCI chief voices concern over tax filing system glitches

April 21, 2025 (MLN): The erroneous classification of taxpayers as "non-active" by the Inland Revenue Service (IRS), despite the Federal Board of Revenue’s (FBR) official extension of sales tax return filing deadlines for February and March 2025, has raised serious concern.

This issue has been strongly taken up by President of the Karachi Chamber of Commerce & Industry (KCCI), Muhammad Jawed Bilwani.

“It is deeply troubling that numerous taxpayers are being unfairly labeled as inactive solely due to delays in filing returns for two consecutive periods, even though official extensions were granted,” stated President KCCI Muhammad Jawed Bilwani.

“This is causing unnecessary difficulties for honest taxpayers who are already trying to comply with the ever-changing regulatory environment.”

President Bilwani underscored that the sales tax return filing system is under immense strain, largely due to a series of recent and abrupt changes, according to the press release issued today.

“The FBR’s decision to extend the deadlines clearly reflects that the system is struggling to cope. Yet, instead of facilitating the taxpayers, they are being penalized, which is counterproductive,” he emphasized.

Commenting on the technical difficulties faced by taxpayers, President Bilwani noted that over the past few months, the FBR has introduced several mandatory requirements.

These include eight-digit Harmonized System (H.S.) codes, precise units of measurement, and new annexures like ‘H-1’, ‘J’, and ‘C-1’ in sales tax returns.

He elaborated that while imported items can be easily linked with H.S. codes from Goods Declarations, manufacturers of local goods are facing major challenges.

“Many local producers are simply unaware of the correct H.S. codes for their products. The same item being assigned different codes by different suppliers is creating unnecessary confusion and inconsistency,” he said.

President Bilwani urged the FBR to reconsider this approach.

“Instead of placing the burden of identifying specific H.S. codes on taxpayers, the system should allow taxpayers to describe the item and then automatically assign the appropriate H.S. code."

This would reduce confusion and improve standardization, he suggested.

Highlighting another technical limitation, President Bilwani criticized the restriction of unit measurements to kilograms (K.G.) only.

“This is highly impractical. A dropdown menu should offer all standard units of measurement. If needed, the tax department can always request clarification at a later stage instead of enforcing rigid input criteria,” he proposed.

Addressing the sudden implementation of new annexures, he cautioned, “Annex ‘J’ concerning production data and Annex ‘H-1’ related to stock reporting by non-manufacturers should not be enforced abruptly.

"These should be phased in with proper educational support through seminars and workshops, rather than being thrust upon taxpayers mid-year,” he added.

President Bilwani also highlighted the inconsistency between the legal status of filing extensions and the current behavior of the IRS system.

“It is legally inappropriate to declare a taxpayer inactive for failing to file returns during months for which official extensions have already been granted," he added.

"This mismatch between policy and system enforcement is deeply unfair and must be rectified immediately,” he asserted.

He concluded by urging the FBR to adopt a more pragmatic, technology-driven, and taxpayer-friendly approach.

“The current system creates undue hardship for compliant businesses."

"It is essential that reforms are introduced with proper planning, consultation, and support mechanisms to ensure fairness and ease of doing business,” said President Muhammad Jawed Bilwani.

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