Compliance is a critical component of running a successful and sustainable business. In Pakistan, companies are subject to a complex set of federal and provincial laws governing taxation, labor, corporate governance, financial reporting, and operational practices. Non-compliance can result in penalties, legal disputes, reputational damage, and even business closure. Despite best intentions, many businesses—especially small and medium enterprises (SMEs)—struggle to maintain compliance due to lack of awareness, capacity, or evolving regulations.
This article explores the most common compliance issues faced by businesses in Pakistan, their root causes, and practical ways to mitigate risks and align with regulatory expectations.
1. Failure to Register the Business Properly
Many businesses in Pakistan start informally and delay proper registration with the SECP, FBR, or provincial revenue authorities. This creates legal ambiguities, limits access to banking, tenders, or investors, and increases the risk of penalties.
Common Problems:
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Operating without SECP incorporation
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No National Tax Number (NTN)
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Absence of a sales tax registration number (STRN)
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Not registering with relevant industry bodies or regulators (e.g., PEC, SBP, PRA, SRB)
2. Income and Sales Tax Non-Compliance
Tax evasion and under-reporting remain rampant among businesses in Pakistan. Both Federal Board of Revenue (FBR) and provincial tax authorities are enhancing enforcement, but issues persist.
Key Issues:
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Failure to file timely income and sales tax returns
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Incorrect input/output tax adjustments
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Non-deduction or non-deposit of withholding tax
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Misreporting of turnover or expenses
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Operating without valid tax registration
Many small business owners rely on unqualified tax agents, leading to incorrect filings and missed deductions or penalties.
3. Non-Filing of Annual Returns with SECP
All companies registered with the Securities and Exchange Commission of Pakistan (SECP) are required to file annual returns, financial statements, and statutory forms.
Frequent Mistakes:
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Not holding mandatory annual general meetings (AGMs)
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Failing to submit Form A (annual return) and Form 29 (change in directors)
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Delay in submitting audited accounts
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Neglecting to renew company registration or update details in SECP records
This leads to companies being flagged as inactive or even struck off the SECP register.
4. Violation of Labor Laws and Employee Rights
Many businesses, especially in the manufacturing and service sectors, struggle to comply with labor regulations under provincial and federal laws.
Common Violations:
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No employment contracts or appointment letters
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Non-payment of minimum wage
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Lack of registration with EOBI and Social Security institutions
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Absence of grievance redressal procedures
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Failure to pay overtime or annual leave dues
Such issues can trigger labor inspections, fines, or even litigation from employees.
5. Unregistered Employees and Social Contributions
All employers are required to register eligible employees with EOBI (Employees’ Old-Age Benefits Institution) and Provincial Social Security Institutions (PESSI, SESSI, etc.).
Typical Non-Compliance:
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Failure to report employees
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Underreporting of wages
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Delayed or partial contributions
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No record-keeping or payslips
This deprives workers of social protection and can create financial liabilities for the employer in case of audits or complaints.
6. Ignorance of Industry-Specific Licensing
Businesses in sectors like construction, pharma, healthcare, telecom, education, and food services require specific regulatory licenses and approvals.
Examples:
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PEC license for construction firms
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DRAP registration for pharmaceuticals
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SBCA/NOC for real estate and construction
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NEPRA licensing for power generation/distribution
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PTA authorization for telecom and IT
Operating without these can result in closure orders, fines, or cancellation of contracts.
7. Data Protection and Cybersecurity Non-Compliance
With the rise in digital transactions and e-commerce, Pakistan is introducing data privacy regulations under the Personal Data Protection Bill. Many businesses are unaware or unprepared.
Risk Areas:
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Collecting personal data without consent
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No data retention or deletion policy
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Weak cybersecurity protocols
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Exposure to ransomware or phishing attacks
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No appointment of a data protection officer
Non-compliance may attract regulatory scrutiny from bodies like MoITT, SECP, and SBP (in case of financial service providers).
8. Failure to Maintain Proper Books and Records
Businesses must maintain accounting records, inventory logs, and supporting documentation for a period of at least six years under various laws.
Common Errors:
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Incomplete or manual recordkeeping
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No segregation between personal and business transactions
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Misclassification of income or expenses
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No tracking of receivables/payables
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Lack of audit trail for large transactions
This can result in assessment errors, tax audits, and financial misstatements.
9. Cash-Based and Undocumented Transactions
A large number of SMEs and traders rely heavily on cash dealings, which leads to underreporting and tax evasion.
Implications:
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No evidence of business activity
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Ineligible for bank loans or investments
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Higher scrutiny by FBR
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Missed opportunities to claim input tax or depreciation
The government is now promoting digital payments and linking POS systems with FBR to monitor such businesses.
10. Non-Compliance with Import/Export Regulations
Pakistan’s importers and exporters must comply with regulations from Customs, SBP, Ministry of Commerce, and FBR.
Common Breaches:
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Misdeclaration of goods or HS codes
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Delayed filing of import/export documents
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Non-repatriation of export proceeds within 180 days
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Violations of L/C procedures or SBP circulars
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Unlicensed export of restricted goods
This results in seizure of goods, blacklisting, or suspension of import/export privileges.
11. Environmental and Safety Regulations
Businesses in sectors like textile, leather, energy, construction, and chemicals are subject to environmental laws from EPA Pakistan and provincial EPAs.
Typical Violations:
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No Environmental Impact Assessment (EIA)
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Emissions exceeding permissible limits
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Improper waste management
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Non-compliance with workplace safety laws
Firms may face closure orders, public backlash, and legal challenges from regulators or communities.
12. Non-Disclosure of Related Party Transactions
Under the Companies Act, 2017, companies must disclose transactions with related parties, including directors and shareholders.
Common Problems:
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Unrecorded loans to directors
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Hidden sales or purchases from affiliates
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No board resolution for inter-party transactions
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Non-disclosure in financial statements
This can lead to SECP investigations, auditor objections, and reputational damage.
13. Lack of Awareness and Training
One of the biggest hurdles is lack of knowledge among business owners and staff about compliance requirements.
Contributing Factors:
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No in-house legal or compliance team
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Reliance on informal advice
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Lack of training on regulatory updates
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No internal monitoring or audit system
Building a compliance culture is essential for long-term survival.
14. Late Penalties and Surcharges
Businesses often delay compliance actions, leading to:
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Late tax return penalties
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SECP late filing fees
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Bank or loan covenant breaches
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Missed regulatory deadlines
This affects both profitability and business reputation.
15. Ineffective Internal Controls
Companies that do not implement checks and balances, delegation of authority, and dual signatory policies are vulnerable to:
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Fraud and embezzlement
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Regulatory breaches
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Financial mismanagement
Such gaps also expose the business to risks during audits and due diligence.
How to Improve Compliance in Your Business
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Hire Qualified Advisors: Engage professionals for tax, audit, and legal compliance.
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Use Accounting Software: Automate financial records and reporting.
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Conduct Regular Internal Audits: Identify and correct issues early.
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Stay Updated with Laws: Monitor changes in tax, labor, and regulatory rules.
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Document Everything: Maintain contracts, receipts, payroll, and approvals.
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Train Employees: Create awareness on compliance expectations.
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Leverage Technology: Use ERP and cloud systems to manage operations securely.
Conclusion
Compliance is not just a legal obligation—it’s a foundation for trust, investment, and sustainability. The regulatory environment in Pakistan is evolving, with increasing digitalization and monitoring. Businesses that proactively address compliance gaps are better positioned for growth, credibility, and resilience. Partnering with professional consultants and adopting a culture of integrity can help avoid costly pitfalls and drive long-term success.
