What penalty and default surcharge apply if a manufacturer files the monthly sales tax return late or pays less than due?

Filing late and paying late are two separate defaults under the Sales Tax Act, and each has its own cost. A mill that files on time but pays less than the return shows still faces a penalty and default surcharge on the unpaid part. The amounts below are from the Act as amended to 30 June 2026.

What does the law say?

The return. Section 26(1) requires every registered person to furnish, by the due date, a true, complete and correct return “indicating the purchases and the supplies made during a tax period, the tax due and paid”. Section 2(9) defines the due date for a return as the 15th day of the month following the end of the tax period, or another date the Board notifies. Rule 18(9) of the Sales Tax Rules splits it: where the due date is the 15th, tax is deposited by the 15th and the return is submitted electronically by the 18th.

Penalties in the section 33 Table.

Serial	Offence	Penalty
1	Fails to furnish a return within the due date	Rs. 50,000. If filed within ten days of the due date, Rs. 2,000 for each day of default
5	Fails to deposit tax due, or any part, in the time or manner laid down	Rs. 50,000 or 5% of the tax involved, whichever is higher. If paid within ten days of the due date, Rs. 5,000 for each day of default

The Finance Act, 2026 substituted these amounts. Serial 5 has two more provisos: no penalty for a miscalculation made for the first time during a year, and, if tax is still unpaid sixty days after a notice from an officer not below Assistant Commissioner, liability on conviction by a Special Judge to imprisonment up to three years, a fine up to the tax involved, or both.

Default surcharge. Section 34(1) applies when a registered person does not pay tax due in time, claims inadmissible input tax or refund, or wrongly applies zero rate. The rate is “twelve percent per annum or KIBOR plus three percent per annum, whichever is higher” of the tax due. For tax fraud it is two per cent per month.

How the period is counted. Section 34(2)(b) says the period runs from “the 16th day of a month (following the due date of the tax period to which the default relates)” to the day before the tax is actually paid. The Explanation says tax due does not include penalty.

How does it work in practice?

• A late return with tax paid on time attracts only the serial 1 penalty.
• Tax paid late attracts the serial 5 penalty and default surcharge, whether or not the return was on time.
• Extensions. Section 26AB lets the Commissioner extend the filing date, normally by up to fifteen days. Section 26AB(5) says the extension does not change the due date for payment for default surcharge purposes.
• Voluntary correction. Section 26(4) says a person who files a revised return voluntarily with the short-paid tax and default surcharge, before receiving a notice of audit, pays no penalty. After an audit points it out but before a show cause notice, the person pays the tax, default surcharge and twenty five percent of the penalty. After a show cause notice, the full penalty applies.

Worked example (illustrative figures)

A weaving mill in Faisalabad owes Rs. 3,000,000 for the August tax period. The deposit date is 15 September and the return date is 18 September under rule 18(9).

Case A, late return only. Tax is paid on 15 September, but the return is filed on 22 September.

1. Filed within ten days, so the per-day penalty applies.
2. The Act does not say whether “due date” here means the 15th in section 2(9) or the 18th filing date in rule 18(9). Counting from the 18th: 4 days x Rs. 2,000 = Rs. 8,000. Counting from the 15th: 7 days x Rs. 2,000 = Rs. 14,000.

Case B, tax paid late. The return is filed on time, but the Rs. 3,000,000 is paid on 25 October.

1. Paid more than ten days late, so serial 5 applies: higher of Rs. 50,000 or 5% x Rs. 3,000,000 = Rs. 150,000. Penalty: Rs. 150,000.
2. Default surcharge period, reading section 34(2)(b) as starting on 16 September: 16 to 30 September (15 days) plus 1 to 24 October (24 days) = 39 days.
3. At the 12% floor, on a 365-day year: Rs. 3,000,000 x 12% x 39 / 365 = Rs. 38,466 (rounded).
4. If KIBOR plus 3% is above 12% for the period, that higher rate applies instead. KIBOR is not stated in the Act, and the Act does not state a day-count basis.

What if …?

What if the mill is short of cash because its refund is stuck? Neither serial 5 of the section 33 Table nor section 34 contains an exception for a registered person who is waiting for a refund. Section 34(1) applies to tax not paid in time “whether wilfully or otherwise”.

What if the mill claimed input tax that was not admissible? Section 34(2)(a) counts default surcharge from the date the credit was adjusted or the refund received.

What if the officer asks for a missing return? Section 26(2A) lets an officer of Inland Revenue require it within fifteen days of a notice, or another period the notice allows.

Common mistakes

• Treating an extension as stopping default surcharge. Section 26AB(5) says it does not.
• Filing the return but paying later. The return being on time does not avoid the serial 5 penalty or default surcharge.
• Counting default surcharge as part of the penalty base. The Explanation to section 34 says tax due does not include penalty.

What to check in the official text

Read sections 2(9), 26, 26AB, 33 (serials 1 and 5) and 34 of the Sales Tax Act and rule 18 of the Sales Tax Rules. The current KIBOR, any Board notification changing due dates, and any notification exempting persons from penalty or default surcharge are not held in this corpus.