What is the penalty if my restaurant does not integrate with the FBR POS system?

A Tier-1 restaurant, cafe or bakery that does not integrate its outlets with FBR faces three separate consequences under the Sales Tax Act, 1990: a fixed penalty that grows with each default, liability to have the premises sealed, and a cut in the input tax it can adjust. The Board can also have gas and electricity cut off for notified outlets.

What does the law say?

The duty itself is in the proviso to section 23(6): from the date and in the manner prescribed by the Board, all Tier-1 retailers shall integrate their retail outlets with the Board’s computerized system for real-time reporting of sales. The penalties sit in the table to section 33.

Serial 25A covers a person required to integrate under section 23 or section 40C(4) who fails to register, or if registered, fails to integrate in the manner required by the law and rules, or fails to issue electronic invoices after integration. Column (2) sets:

Default	Penalty
First default	Rs. 500,000
Second default, after fifteen days of the order for the first	Rs. 1,000,000
Third default, after fifteen days of the order for the second	Rs. 2,000,000
Fourth default, after fifteen days of the order for the third	Rs. 3,000,000

Notwithstanding these amounts, the business premises “shall be liable to be sealed” by an officer of Inland Revenue in the manner prescribed. A proviso says that if the retailer integrates before the penalty for the second default is imposed, the Commissioner shall waive the first-default penalty.

Serial 25, as substituted by the Finance Act, 2026, covers a person required to integrate with the Board who fails to register or fails to integrate within the time notified by the Board. It sets a penalty of up to Rs. 1 million, and if the offence continues one month after the first penalty, a second penalty of up to Rs. 5 million. The premises are liable to be sealed with or without a penalty.

Serial 25 and serial 25A overlap. The Act does not say which one applies in a given case, and this page does not decide it. The sealing rules for non-integrated Tier-1 retailers refer to serial 25A.

What happens to input tax?

Section 8B(6) says that if a Tier-1 retailer does not integrate his retail outlet as prescribed during a tax period or part of it, the adjustable input tax for the whole of that tax period is reduced by 60%. This works alongside the general rule in section 8B(1) that input tax cannot be adjusted beyond ninety per cent of output tax.

Worked example (illustrative figures)

Crust and Crumb is a made-up bakery in an air-conditioned plaza in Rawalpindi, so it is Tier-1 under limb (b) of section 2(43A). It has not integrated.

Penalties if it never integrates (serial 25A):

Order	Penalty	Running total
First default	Rs. 500,000	Rs. 500,000
Second default	Rs. 1,000,000	Rs. 1,500,000
Third default	Rs. 2,000,000	Rs. 3,500,000
Fourth default	Rs. 3,000,000	Rs. 6,500,000

If it integrates after the first order but before the second penalty: the Rs. 500,000 is waived by the Commissioner, so the serial 25A penalty is Rs. 0.

Input tax for one month it was not integrated: suppose its input tax on flour, sugar, ghee and packaging for the month is Rs. 300,000.

• Reduction under section 8B(6): 60% x Rs. 300,000 = Rs. 180,000.
• Input tax left to adjust: Rs. 300,000 minus Rs. 180,000 = Rs. 120,000.

The example ignores the separate ninety per cent cap in section 8B(1) and any Board notification changing it.

What if …?

What if my outlet is integrated but a POS stops working? Rule 150X of the Sales Tax Rules says an integrated person who tampers with the system, makes sales otherwise than as the chapter prescribes, or contravenes its provisions, is subject to penalty under section 33. Serial 25A also covers failing to issue electronic invoices after integration.

What if FBR cuts my electricity? Section 14AB lets the Board, through a Sales Tax General Order, direct gas and electricity companies to disconnect notified Tier-1 retailers who are registered but not integrated. The Board shall notify restoration upon integration.

What if I am a registered restaurant but not Tier-1? Section 8B(6) and the sealing chapter of the Rules speak of Tier-1 retailers. Chapter XIV-A of the Sales Tax Rules, which covers registered restaurants, cafes, coffee shops, eateries and snack bars, ends by saying that a registered person who fails to comply with it is liable to penal action as provided in the Act, without naming a serial of the section 33 table.

Common mistakes

• Waiting for the second notice. The first-default waiver only works if integration happens before the second-default penalty is imposed.
• Integrating the main counter only. A Tier-1 outlet must integrate its retail outlets, and the Rules speak of each point of sale.
• Assuming the input tax cut is prorated. Section 8B(6) applies to the whole tax period.

What to check in the official text

Read serials 25 and 25A of the table in section 33, sections 8B, 14AB and 23(6) of the Sales Tax Act as amended to 30 June 2026, and rule 150X of the Sales Tax Rules. Note that section 8B(6) still refers to integration “prescribed under sub-section (9A) of section 3”, although the Finance Act, 2025 omitted the proviso to section 3(9A); the integration duty is now in section 23(6). Board notifications fixing integration dates are not held in this corpus.