What Are the Penalties for Non-Compliance After Company Registration in Pakistan?

 After Company Registration In Pakistan, businesses need to comply with various legal, tax, and regulatory obligations as prescribed by the Securities and Exchange Commission of Pakistan (SECP), the Federal Board of Revenue (FBR), and other relevant authorities. Failure to comply with these requirements can result in severe penalties, fines, and even legal action. Understanding the penalties associated with non-compliance is crucial for business owners to avoid financial and reputational damage. Below is a comprehensive guide to the penalties for non-compliance after company registration in Pakistan.

1. Penalties for Late Filing of Annual Returns

One of the most common non-compliance issues faced by businesses in Pakistan is the failure to file the annual return with the SECP. Under the Companies Act, 2017, all companies are required to file their annual return and financial statements within a specific time frame.

  • Deadline: Annual returns must be filed within 30 days of the company’s annual general meeting (AGM).
  • Penalties for Delay: If a company fails to submit the annual return within the prescribed time, it is liable for a fine. The penalties for late filing are:
    • PKR 100 per day for the first 60 days after the due date.
    • After 60 days, the fine increases to PKR 500 per day.
    • Failure to file the return for over a year may lead to the dissolution of the company.

2. Penalties for Non-Filing of Income Tax Returns

Newly registered companies in Pakistan must file annual income tax returns with the Federal Board of Revenue (FBR). Failure to do so can result in significant financial penalties:

  • Deadline: The tax return must be filed by December 31 of the following tax year (i.e., for the fiscal year ending June 30, the deadline is December 31).
  • Penalties for Late Filing:
    • A penalty of 0.1% of the tax due for each day the return is delayed.
    • The maximum penalty for late filing is 50% of the amount of tax payable.
    • In some cases, interest charges are applied on the outstanding tax amount.

3. Penalties for Non-Payment of Taxes

Companies in Pakistan are required to comply with various tax obligations, such as income tax, sales tax, and withholding tax. Non-payment or delayed payment of taxes can result in serious penalties:

Company Registration In Pakistan
  • Income Tax: If a company does not pay the income tax due within the prescribed period, it will face a penalty of up to 10% of the unpaid tax amount.
  • Sales Tax: Failure to pay sales tax can lead to a fine of 3% to 5% of the unpaid tax amount.
  • Withholding Tax: If a company does not deposit withholding tax to the FBR within the prescribed time, it will face a penalty of 1% of the tax payable per month of delay.

4. Penalties for Non-Compliance with Sales Tax Registration

If a company is required to be registered for sales tax but fails to do so, it faces penalties under the Sales Tax Act, 1990. Businesses must apply for Company Registration In Pakistan if their taxable turnover exceeds PKR 10 million per year.

  • Penalty for Non-Registration: A penalty of PKR 10,000 to PKR 50,000 can be levied for failure to register with the FBR.
  • Penalty for Non-Filing of Sales Tax Returns: If a registered sales tax payer fails to file their returns on time, they can incur a fine of up to PKR 50,000 or more, depending on the size of the business and the duration of non-compliance.

5. Penalties for Failure to Maintain Proper Financial Records

According to the Companies Act, 2017, all companies are required to maintain accurate financial records, including invoices, receipts, bank statements, and other supporting documents. Failure to do so can result in the following penalties:

  • Fine: A company may be fined up to PKR 100,000 for not maintaining proper books of accounts.
  • Imprisonment: In cases of severe neglect or fraudulent activities related to financial record-keeping, the company’s directors may face imprisonment for up to one year.

6. Penalties for Non-Compliance with Employment Laws

Companies in Pakistan are required to comply with various employment-related laws, such as providing employees with statutory benefits, including social security, provident fund contributions, and other benefits under the Employees Old-Age Benefits Institution (EOBI) and Workers Welfare Fund (WWF).

  • Penalty for Non-Registration with EOBI: Failure to register with EOBI can lead to penalties of up to PKR 50,000 or more, depending on the number of employees and duration of non-compliance.
  • Penalty for Non-Payment of Benefits: Companies may face fines and legal action for failing to provide mandatory benefits to employees, including retirement funds and healthcare.

7. Penalties for Non-Compliance with Corporate Governance Standards

The Companies Act, 2017, lays down corporate governance guidelines to ensure that companies operate transparently and in the interest of shareholders. Companies that do not adhere to these standards can face penalties:

  • Failure to Appoint Auditors: Every company must appoint an external auditor within 90 days of registration. Failure to do so results in a fine of up to PKR 50,000.
  • Failure to Hold AGM: Companies are required to hold an annual general meeting (AGM) within six months of the end of each financial year. Failure to hold an AGM within this period can result in a fine of PKR 50,000.

8. Penalties for Non-Compliance with Environmental Regulations

Companies operating in certain industries must comply with environmental regulations enforced by the Environmental Protection Agency (EPA). Violating environmental laws, such as improper waste disposal or air pollution, can result in:

  • Fines: Fines can range from PKR 100,000 to PKR 1,000,000 depending on the severity of the violation.
  • Suspension of Operations: In some cases, the company’s operations may be suspended until compliance is achieved.
Company Registration In Pakistan


Conclusion

Non-compliance with legal, tax, and regulatory obligations in Pakistan can result in substantial penalties and legal consequences for newly registered companies. These penalties can range from financial fines to the dissolution of the company and imprisonment of directors in cases of severe violations. Business owners need to understand and fulfill their compliance responsibilities, including timely tax filings, maintaining proper records, and adhering to corporate governance standards. To avoid penalties, companies should consider hiring legal and financial experts like Hamza & Hamza Law Associates to ensure full compliance with Pakistan's regulatory framework.

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