COMMON COMPLIANCE ISSUES FACED BY BUSINESSES IN PAKISTAN

Compliance with regulatory requirements is a fundamental responsibility for businesses operating in Pakistan. It ensures that organizations remain within the legal framework and avoid penalties, audits, and reputational damage. However, due to a complex legal environment, evolving tax laws, overlapping jurisdictions, and limited awareness, many businesses—especially SMEs and startups—face significant challenges in meeting their compliance obligations. This article outlines the most common compliance issues faced by businesses in Pakistan and provides insights into how they can be effectively managed.

1. Failure to Register with Regulatory Authorities

Many businesses begin operations without formal registration, which exposes them to legal and financial risks.

• Common Omissions:

  • Not registering with the Securities and Exchange Commission of Pakistan (SECP)

  • Ignoring NTN (National Tax Number) registration with FBR

  • Not acquiring Sales Tax Registration Number (STRN)

  • Unregistered labor or trade licenses at local government levels

Impact

• Ineligibility for government contracts

• Difficulty in opening corporate bank accounts

• Legal actions and fines for unauthorized business activity

Solution
Timely registration with SECP, FBR, provincial tax authorities, and municipal bodies ensures business legitimacy.

2. Non-Filing or Late Filing of Tax Returns

Businesses are required to submit various tax returns regularly, including:

• Income tax returns

• Sales tax returns

• Withholding tax statements (Section 165)

• Wealth statements (for individuals and AOPs)

Common Issues

• Delays in filing returns

• Filing returns without proper reconciliation

• Not filing nil returns, assuming no tax is due

Consequences

• Penalties under Section 182 of the Income Tax Ordinance

• Disqualification from appearing on the Active Taxpayers List (ATL)

• Freezing of bank accounts and audit selection

Solution
Set up a tax compliance calendar and work with tax consultants to ensure accurate and timely submissions.

3. Ignoring Withholding Tax Obligations

Businesses often overlook their role as withholding agents when making payments for:

• Salaries and services

• Rent and property transactions

• Contractor payments

• Import and export dealings

Common Mistakes

• Not deducting tax at source

• Deducting but failing to deposit the tax with FBR

• Not issuing tax deduction certificates to vendors

• Missing monthly withholding statements

Impact

• Heavy penalties and default surcharge

• Disallowance of business expenses

• Non-compliance notices from FBR

Solution
Maintain proper withholding registers and deposit taxes within statutory deadlines.

4. Lack of Corporate Governance Compliance

Especially in private limited and public companies, compliance with corporate governance laws is often weak.

• Missing Board meetings and AGMs

• Failure to maintain statutory books (register of members, directors)

• Non-filing of Form A (Annual Return) and Form 29 (Changes in directorship)

• Delayed submission of audited financials

Legal Implication

• Penalties from SECP

• Restrictions on raising capital or entering contracts

• Disqualification of directors

Solution
Hire a company secretary or outsource to a firm experienced in SECP compliance management.

5. Non-Compliance with Labour and Employment Laws

Many businesses neglect their obligations under labor regulations including:

• Minimum wage requirements

• EOBI and Social Security registration

• Employee health and safety regulations

• Contractual obligations and termination processes

Common Violations

• Hiring informal or undocumented workers

• Delayed or non-payment of salaries

• Absence of HR policies or employee contracts

Consequences

• Labor court disputes

• Heavy penalties from Labour Departments

• Damage to employer brand

Solution
Develop a basic HR compliance framework and register employees with relevant labor bodies.

6. Poor Record-Keeping and Audit Readiness

Businesses are legally required to maintain:

• Books of accounts for at least six years

• Sales and purchase invoices

• Bank reconciliations

• Fixed asset registers

• Tax deduction records

Common Mistakes

• Using handwritten or unverified records

• Inconsistent entries in books

• Lack of documentation during audits

Impact

• Inability to defend against audits

• Penalties and demand notices

• Disallowed expenses and tax liabilities

Solution
Adopt cloud-based or software-based accounting systems and periodically reconcile financial data.

7. Overlapping Jurisdiction of Federal and Provincial Tax Authorities

Post-18th Amendment, services are taxed by provincial revenue authorities, while goods remain under FBR. This causes confusion in:

• Telecommunication and IT services

• Transportation and logistics

• Property development services

Issues Faced

• Double taxation

• Conflicting tax demands

• Uncertainty in filing responsibilities

Solution
Engage qualified tax advisors to determine exact liability across PRA, SRB, KPRA, BRA, and FBR.

8. Non-Compliance with Import and Export Regulations

Importers and exporters must comply with:

• Pakistan Customs laws

• Trade license requirements

• WeBOC (Web-Based One Customs) registration

• Sales tax and income tax filings

Common Problems

• Undervaluation or misdeclaration of goods

• Not maintaining shipping and bill of lading documents

• Lack of coordination between accounting and logistics departments

Consequences

• Penalties and seizure of goods

• Suspension of WeBOC ID

• Increased scrutiny and red flagging

Solution
Ensure trade documentation is aligned with books and filings. Monitor all imports/exports through a central compliance checklist.

9. Environmental and Zoning Non-Compliance

Industries and commercial projects must comply with:

• EPA approvals

• Building codes

• Zoning laws and permits

Issues Include

• Unapproved structures

• Operating factories in residential areas

• Waste management violations

Risk

• Fines from Environmental Protection Agencies

• Sealing or demolition of property

• Rejection of future NOCs

Solution
Get all environmental clearances and land use approvals prior to expansion or operations.

10. Inadequate Data Protection and Cybersecurity Compliance

As businesses go digital, compliance with data protection and cybersecurity regulations is essential.

• Absence of data usage consent forms

• No data encryption or firewalls

• No internal policy for data breaches

Impacts

• Customer trust issues

• Potential regulatory penalties (as new Data Protection Bill evolves)

• Vulnerability to cybercrime

Solution
Implement IT security policies, maintain user data with consent, and stay updated on national regulations.

11. Ignoring POS and Sales Invoice Integration

FBR mandates integration of Point of Sale (POS) systems for:

• Tier-1 retailers

• Large-scale wholesalers and distributors

• Franchise outlets

Non-compliance Issues

• Fines under Section 33 of the Sales Tax Act

• Risk of blacklisting

• Ineligibility for tax credits

Solution
Ensure POS system is integrated with FBR’s Sales Tax Real-time Invoice System (STRIS) and that invoice numbers are properly recorded.

12. VAT/Sales Tax Misreporting

Businesses either overstate or understate their input/output tax.

Common Mistakes

• Claiming ineligible input tax

• Delayed issuance of invoices

• Non-matching of purchase and sales data

Consequences

• Audit selection

• Disallowance of input tax

• Demand notices with penalties

Solution
Automate your sales tax reporting and reconcile with supplier data monthly.

13. Overlooking SECP Annual Filings and Updates

All registered companies are required to submit:

• Annual Returns (Form A)

• Financial Statements

• Form 29 for any change in directors

• Special resolutions for shareholding changes

Neglecting these can result in

• Striking off from SECP register

• Penalties and disqualification of directors

• Restrictions on banking transactions

Solution
Set filing reminders and appoint a compliance officer or firm to manage SECP requirements.

14. Failing to Monitor Foreign Remittance and Tax Implications

Businesses receiving payments from abroad must comply with:

• FBR guidelines on foreign remittance declarations

• PSEB registration (for IT exporters)

• Bank reconciliations for SBP reporting

Common Issues

• Improper declaration of remittance

• Confusion between export and domestic income

• Overlooking foreign tax credits

Solution
Maintain proper bank documentation and use accurate currency conversion methods. Register with PSEB if exporting IT services.

15. Non-Adoption of International Financial Reporting Standards (IFRS)

All public interest and medium-to-large companies must follow IFRS for preparing financial statements.

Issues

• Not following accrual-based accounting

• Lack of disclosure for related party transactions

• Misclassification of income or expenses

Consequences

• Audit qualifications

• Loss of investor confidence

• Legal liabilities

Solution
Train finance teams in IFRS and involve qualified chartered accountants for year-end closing.

How Sterling.pk Helps You Stay Compliant

• Full-service tax compliance and filing support

• Corporate secretarial services for SECP and labor compliance

• Withholding tax and payroll compliance

• Advisory on environmental, legal, and financial regulatory frameworks

• Setup of compliance calendars and internal policy documentation

Conclusion

Compliance is not optional—it’s a critical part of running a legally sound and financially healthy business in Pakistan. As tax regulations tighten and digital monitoring increases, businesses must proactively address their compliance gaps. From corporate filings and tax obligations to labor laws and cybersecurity, each area of compliance plays a role in sustainable growth. By working with experienced compliance partners like Sterling.pk, businesses can reduce legal risks, build trust, and focus on what they do best—growing their ventures.