FBR Blocks Rs6 Billion Refunds Over Non-Compliance

For the first time, the Federal Board of Revenue (FBR) has withheld sales tax refunds exceeding Rs6 billion from taxpayers who failed to comply with mandatory digital monitoring requirements, including the installation of production surveillance systems at their manufacturing facilities.

According to industry sources, the action follows the expansion of the FBR’s enforcement powers under the Finance Act, 2026, which authorises the tax authority to implement advanced digital compliance mechanisms such as production monitoring, video surveillance, and video analytics across designated industries.

As part of the initial phase of enforcement, the FBR’s automated system blocked refund claims submitted by businesses that had not installed the required production monitoring systems or failed to meet other prescribed digital compliance obligations.

The tax authority is expected to intensify enforcement during the next phase by introducing additional regulatory actions, including suspension of taxpayer registrations, restrictions on imports, sealing of business premises, and confiscation of finished goods.

Businesses that continue to resist the installation of production monitoring systems beyond July 31, 2026, may also face financial penalties, blacklisting, suspension of sales tax registration, and restrictions on the movement of goods from production facilities.

The FBR has already implemented digital production monitoring in the tobacco, cement, sugar, fertiliser, and tiles industries. Installation of the system is currently underway in the iron and steel, packaged milk, beverages, and textile sectors.

Alongside stricter compliance measures, the FBR has accelerated the processing of legitimate refund claims. The tax authority disbursed approximately Rs43 billion in refunds during June 2026 and nearly Rs600 billion throughout FY2025-26.

In addition, importers who fail to comply with the prescribed digital requirements may be removed from the Customs Green Channel, while further enforcement measures may include suspension of sales tax registration and the imposition of import-related restrictions.