Understanding Penalties for Non-Compliance in Corporate Pakistan

Introduction

Compliance is the backbone of corporate governance in Pakistan. From small private companies to large public listed firms, all entities registered under the Companies Act, 2017, and regulated by bodies such as the Securities and Exchange Commission of Pakistan (SECP), the Federal Board of Revenue (FBR), provincial tax authorities, and other regulators are legally bound to adhere to a wide range of obligations. When businesses fail to meet these obligations, they expose themselves to legal penalties, fines, criminal prosecution, and even deregistration.

This article aims to provide a comprehensive understanding of penalties for non-compliance in Pakistan’s corporate landscape—their legal basis, types, and how businesses can avoid them. Whether you’re a company director, CFO, compliance officer, or entrepreneur, this guide will help you stay on the right side of the law.

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What is Corporate Non-Compliance?

Corporate non-compliance refers to a company’s failure to follow the legal and regulatory obligations imposed by law. These obligations may relate to:

• Timely filing of statutory returns

• Maintaining proper books of accounts

• Conducting annual general meetings (AGMs)

• Appointing auditors

• Withholding and depositing taxes

• Disclosing beneficial ownership

• Fulfilling employee social security contributions

• Responding to regulatory notices or inspections

Non-compliance may occur due to ignorance, negligence, or intentional misconduct, but the consequences are often the same—penalties, reputational loss, and legal action.

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Key Regulatory Authorities Imposing Penalties in Pakistan

1. Securities and Exchange Commission of Pakistan (SECP)

Administers the Companies Act, 2017, and imposes penalties for violations in company registration, disclosures, filings, and governance.

2. Federal Board of Revenue (FBR)

Penalizes non-compliance related to income tax, sales tax, and withholding tax obligations.

3. Provincial Revenue Authorities (PRA, SRB, KPRA, BRA)

Responsible for sales tax on services, and levy penalties for incorrect returns, non-filing, or delayed payments.

4. Employees Old-Age Benefits Institution (EOBI)

Enforces penalties for failure to register employees or submit monthly contributions.

5. Social Security Institutions (PESSI/SESSI)

Monitor labor compliance and impose fines for unpaid or late contributions.

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Common Types of Corporate Non-Compliance and Their Penalties

Let’s explore major areas of non-compliance and the applicable penalties.

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1. Non-Filing or Late Filing of Statutory Returns (SECP)

Companies must file various forms such as:

• Form A (Annual Return)

• Form 29 (Change in directors)

• Form 45 (Change of address)

• Audited financial statements

Penalty:

• Up to PKR 1,000 per day of default, subject to a maximum

• SECP may also initiate investigation or prosecution

Example:
A private limited company fails to file its Form A for two years. SECP imposes a penalty of PKR 365,000 and issues a show-cause notice.

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2. Failure to Hold AGM or Submit Financial Statements

Legal Requirement:
Every public company must hold an AGM within 120 days of the financial year-end.

Penalty:

• Fine of up to PKR 1 million

• Directors may be held personally liable

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3. Income Tax Non-Compliance (FBR)

a. Failure to File Income Tax Return (ITR)

Penalty:

• PKR 1,000 per day of delay, minimum PKR 40,000

• Name removed from Active Taxpayer List (ATL)

b. Failure to File Withholding Tax Statements (Section 165)

Penalty:

• PKR 2,500 per day, maximum up to PKR 50,000

c. Failure to Deduct or Deposit Withholding Taxes

Penalty:

• Recovery of tax amount plus default surcharge (12% per annum) and penalty of up to 100% of the tax not withheld

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4. Sales Tax Non-Compliance

Applicable To: Registered persons under Sales Tax Act, 1990

a. Late Filing of Sales Tax Return

• Penalty: PKR 5,000 minimum or 3% of the amount of tax due

b. Failure to Register for Sales Tax

• Penalty: Up to PKR 10,000 for each day of default

c. False Declaration of Input/Output Tax

• Penalty of three times the tax amount

• May trigger audit or investigation

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5. Non-Payment of EOBI Contributions

Requirement:
Employers must contribute 5% of gross salary and 1% by employee.

Penalty:

• Fine up to PKR 5,000 per month per employee

• Recovery action, including attachment of bank accounts

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6. Social Security (PESSI/SESSI) Non-Compliance

Penalty:

• Up to PKR 1,000 per day of non-compliance

• Inspectors may visit workplace to conduct checks

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7. Violation of Corporate Governance Norms

Includes:

• Non-compliance with Code of Corporate Governance

• Failure to appoint independent directors or auditors

• Not forming required board committees

Penalty:

• Fines up to PKR 2 million

• Directors may be declared unfit for office

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8. Misstatement or Fraudulent Activity

In case of fraud, forgery, or misrepresentation:

• Penalty up to PKR 10 million

• Imprisonment up to 7 years

• Disqualification of directors under Section 172 of Companies Act

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Real-World Examples of Penalties in Corporate Pakistan

Case 1: Telecom Firm Penalized by SECP

A Lahore-based telecom company failed to file audited accounts and hold an AGM for two years. SECP imposed a fine of PKR 2 million and disqualified two directors.

Case 2: Export Company Deregistered

An IT services firm failed to submit income tax returns and sales tax invoices for three years. FBR deregistered the company and imposed a penalty of PKR 1.5 million.

Case 3: Employer Fined for EOBI Non-Payment

A textile company in Faisalabad was found to have registered only 40 out of 150 employees with EOBI. The company was fined PKR 6 million for evasion.

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Civil vs. Criminal Penalties

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Impact of Non-Compliance on Business

• Loss of credibility with investors and banks

• Ineligibility for government contracts and tenders

• Blocked business expansion (e.g., unable to register branches)

• Damaged reputation in the market

• Director disqualification and legal consequences

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Prevention: How to Avoid Corporate Penalties

1. Maintain a Compliance Calendar

Track deadlines for SECP filings, tax submissions, and returns with the help of compliance software or consultants.

2. Appoint a Qualified Company Secretary

Ensure you have someone dedicated to handling all regulatory communication and submissions.

3. Conduct Regular Internal Audits

Quarterly internal audits help identify and correct compliance gaps proactively.

4. Stay Updated with Law

Monitor changes in corporate, tax, and labor laws by subscribing to SECP and FBR newsletters or engaging with consultants like Sterling.pk.

5. Outsource to Experts

Use compliance professionals to handle returns, filings, audits, and employee-related statutory obligations.

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Role of Compliance Consultants Like Sterling.pk

At Sterling.pk, we help companies:

• File statutory forms and annual returns with SECP

• Maintain tax compliance (income tax, sales tax, withholding)

• Conduct health checks to avoid EOBI, PESSI fines

• Prepare for SECP inspections and investigations

• Develop standard operating procedures (SOPs) for long-term compliance

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FAQs

Q1: What is the most common reason for penalties in Pakistan?
Late or non-filing of SECP forms and tax returns are the most frequent causes of penalties.

Q2: Can penalties be appealed?
Yes, appeals can be filed with the Appellate Tribunal, Commissioner Appeals, or SECP appellate forum, depending on the authority involved.

Q3: What is the statute of limitation for regulatory action?
Generally, the limitation is 5 years, but in fraud or concealment cases, no time bar applies.

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Conclusion

In today’s regulatory environment, compliance is not optional—it’s essential. Understanding the penalties for non-compliance in corporate Pakistan is critical for avoiding financial losses, reputational damage, and legal consequences. Companies that invest in building a compliance culture enjoy smoother operations, stronger investor confidence, and long-term growth.

Whether you’re running a small startup or a large corporation, partnering with compliance experts like Sterling.pk ensures that you stay ahead of deadlines and regulatory risks—keeping your business secure and sustainable.