FBR Sales Tax Circular 01 of 2026 Explained: Invoices for Exempt Sales and Advances, Rs 1 Million Non-Integration Penalty, Simulated Invoice Register and the 20% Input Tax Penalty

On 11 September 2026 the Federal Board of Revenue (FBR) issued Sales Tax Circular No. 01 of 2026. A circular is FBR's own explanation of a law change. It does not make new law; it tells taxpayers and officers how FBR reads it. This one explains what the Finance Act 2026 (the yearly budget law, in force from 1 July 2026) changed in the Sales Tax Act 1990 and the Federal Excise Act 2005. This page picks out the changes that matter to anyone who issues FBR digital invoices.

The main facts are short. Section 23(1) of the Sales Tax Act now requires an invoice for taxable and exempt supplies, and for every advance receipt. Each invoice must carry a verifiable and unique FBR invoice number. A registered person who does not integrate with FBR's electronic invoicing system pays Rs 1 million under the substituted clause (25) of section 33. If the failure continues one month after that, a second penalty of up to Rs 5 million follows, and the premises can be sealed. A new clause (29) creates a public Simulated Invoice Issuers Register for fake-invoice issuers, with a penalty equal to the invoice value including tax. Clause (30) charges 20% on input tax that FBR's system cannot match to the supplier's declared output tax. Clause (31) adds another 20% if a buyer does not reverse input tax on a listed issuer's invoices within 60 days.

The circular carries reference C. No. 3/2-STB/2026. It also covers new Tier-1 retailer tests, a faceless audit system, new withholding duties and new Sixth Schedule exemptions. 'Finance Act 2026: What Changed for FBR Digital Invoicing & E-Invoicing' covered these changes when the budget was reported. This page updates that picture with FBR's official wording.

Until June 2026 the law asked for a sales tax invoice only on taxable supplies (sales on which tax is charged). Many shops sold exempt goods (goods with no sales tax, listed in the Sixth Schedule of the Act) on a plain cash memo. The Finance Act 2026 changed section 23(1). A registered person must now issue an invoice for taxable and exempt supplies. The invoice must carry a verifiable and unique FBR invoice number. That number is the IRN (Invoice Reference Number, the unique number FBR gives every digital invoice). Your software receives it when it posts the sale to FBR.

The Act also adds the term 'advance receipt invoice'. When a customer pays before delivery, the payment itself needs an invoice with an FBR number. This follows the time of supply rule in section 2(44): a sale starts at delivery or at payment, whichever is earlier. 'When Must You Issue an FBR Digital Invoice? Time of Supply, Advance Payments and the Whichever-Is-Earlier Rule (2026)' shows the two-invoice method. Section 18(1) of the Federal Excise Act was changed in the same words.

So an exempt line is never skipped. Use the exempt sale type (sandbox scenario SN006), rate Exempt and tax 0, plus the Sixth Schedule table and serial FBR lists for the item. A missing schedule or serial is error 0077 or 0078. 'Zero-Rated vs Exempt Invoices in FBR Digital Invoicing' explains the difference between 0% and exempt. The circular also widens the exempt list. Serial 32 of Table 1 of the Sixth Schedule (newsprint and books) now includes magazines, and a new serial 27A exempts wheat and rice bran. The terms 'electronic invoicing system' and 'production monitoring system' are now written into the Act itself. 'Rule 150Q of the Sales Tax Rules: The Legal Basis for FBR Digital Invoicing (2026)' explains where the invoicing duty came from.

Section 33 of the Act lists offences and penalties. The circular says the amounts had not been reviewed for a long time and have been raised for inflation. Clause (25) covers a registered person who fails to integrate his business with the Board, or to record sales and production through the Board's computerised system. Before the change, this clause carried Rs 1 million plus sealing. The substituted clause keeps the Rs 1 million first penalty. It adds a second penalty of up to Rs 5 million if the offence continues one month after the first penalty. The premises can be sealed with or without a penalty, in a manner FBR will prescribe.

Two more sticks sit beside the fine. Section 21(2) let the Commissioner suspend the registration of a person issuing fake or flying invoices. It now also covers failure to integrate the electronic invoicing system, and failure to install a production monitoring system. Section 8B lets the Board cut or raise the input tax adjustment ratio (how much of the tax paid on purchases you may deduct) based on compliance with FBR's digital systems, including digital invoicing and POS. Section 40C lets FBR seize goods, and the vehicle carrying them, where tax stamps or production monitoring were skipped. 'FBR Track & Trace vs Digital Invoicing: Two Different Systems Explained (2026)' keeps those two systems apart.

There is a carrot too. A new proviso to section 6(2) lets FBR tax steel melters and re-rollers on electricity units, with a lower rate for digitally integrated units; 'Steel Sales Tax on Electricity: Rs 5 vs Rs 30 per Unit and Why FBR Integration Decides It (SRO 1245(I)/2026)' has the numbers. 'FBR Digital Invoicing Tax Credit: Section 64D 10% Incentive (Finance Act 2026)' explains the income tax credit for integration costs. Any first-default penalty of Rs 500,000 you see quoted elsewhere describes the clause before the Finance Act 2026. Read 'FBR Digital Invoicing Penalties in 2026: Fines, Deadlines and How to Stay Compliant' together with this page.

Clause (29) of section 33 is new. FBR must first issue a notice and hold a hearing. If it then proves that a registered person issued a tax invoice for a simulated or fictitious transaction (a paper sale where no goods or services moved), the penalty equals the value of that invoice including sales tax. FBR also puts the person's name and registration number on a public 'Simulated Invoice Issuers Register'. The name comes off only after the penalty and default surcharge (the interest-like charge for late tax) are paid in full and compliance is shown.

The register bites the buyer as well. Input tax claimed on a listed person's invoices is reversed automatically from the date of listing. Clause (31) gives the buyer 60 days from the listing to reverse that input tax himself. If he does not, he pays default surcharge plus 20% of the credit he failed to reverse. 'Fake & Flying Invoices in 2026: Input Tax Denial, Invoice-Value Penalties and the Public Register' explains how flying invoices work and why honest buyers get caught.

Clause (30) reaches every registered buyer. FBR's computerised system compares the input tax you claimed with the output tax your supplier declared for the same or a nearby tax period. If it cannot match them, and this is confirmed after a notice and hearing, you pay 20% of the unmatched amount, reverse the credit, and pay default surcharge under section 34. The defence is simple. Buy only against FBR digital invoices with an IRN. Check the seller on the Active Taxpayers List before you pay. Match your Annexure-C to what your suppliers filed. 'How to Check a Supplier Before Claiming Input Tax: FBR Invoice, ATL & Registration Checks (2026)', 'IRN and Input Tax Adjustment: Why Your Buyers Need FBR-Verified Invoices' and 'How Digital Invoicing Feeds Your Sales Tax Return (Annexure-C) in 2026' walk through each check.

Withholding. The Eleventh Schedule lists who must withhold sales tax (hold back part of the tax and pay it to FBR directly). Serial 4 covered companies only; they withhold 5% of the gross value of supplies from a person who is not an active taxpayer. Associations of persons and individuals are now withholding agents at par with companies. A new serial 14 covers toll manufacturers (factories that process goods owned by someone else). They must withhold and deposit four times the tax charged on conversion charges where the service provider is not a registered person. 'FBR Digital Invoicing for Sole Proprietors, Individuals & AOPs (Corporate vs Non-Corporate Deadline)' and 'Sales Tax Withheld at Source in FBR Digital Invoicing' show where the withheld amount goes on the invoice.

Tier-1 retailers. The wholesaler-cum-retailer test in clause (d) of section 2(43A) now applies only above Rs 200 million turnover. The card-machine test in clause (f) is gone. Clause (g) is replaced by clause (gb): a retailer is Tier-1 if declared turnover is above Rs 200 million, or if turnover worked back from section 236G and 236H deductions crosses that figure. The Board can now exclude any person or class from Tier-1 by notification. A proviso to section 9 lets the Board set a mechanism, including electronic adjustment, for debit and credit notes; 'Debit Notes and Credit Notes in FBR Digital Invoicing' covers today's practice and 'FBR STGO 01 of 2026: Invoice Amendment, Cancellation & the 72-Hour Rule' covers corrections.

Schedules and audits. The Third Schedule (goods taxed on the printed retail price) has been expanded again. The Ninth Schedule now lets an individual pay sales tax on an imported phone in instalments through PTA's DIRBS, all paid before the end of the financial year of import; 'FBR Digital Invoicing for Mobile Phone Dealers & Distributors (SN015, Ninth Schedule)' covers the trade. New section 32C sets up a National Faceless Centre, so audits, assessments and appeals run through e-hearings. Section 25(8B) obliges the officer to issue a written audit report. 'FBR Digital Invoicing Record-Keeping: Six-Year Retention, Digital Signatures & Audit Readiness (2026)' explains what to keep ready.

First, check that every exempt line and every advance goes through your digital invoicing software and comes back with an IRN and QR code. If your billing software still prints exempt sales on a plain memo, fix that now. 'Who Is Exempt from FBR Digital Invoicing? Cottage Industry, Unregistered Sellers & Services (2026)' explains that an exempt product does not make the seller exempt from invoicing.

Second, if you are registered but not yet integrated, the exposure is now Rs 1 million, then up to Rs 5 million, plus suspension under section 21(2). 'How to Register for FBR Digital Invoicing (Step by Step)' and 'FBR Digital Invoicing Compliance Checklist (2026): Everything You Need Before Go-Live' take you from STRN to your first posted invoice. Third, tighten purchasing: buy against IRN invoices, check the ATL, and watch for the Simulated Invoice Issuers Register once FBR publishes it. 'Registered vs Unregistered Buyers on FBR Invoices: Registration Type, Further Tax and ATL Checks' covers the seller side of the same check.

Fourth, if you are an individual or AOP buying from non-active taxpayers, or a toll manufacturer using unregistered service providers, set up the new withholding before your next return. Fifth, re-run the Tier-1 tests against the Rs 200 million figure. Digi Invoice posts exempt, reduced-rate and standard lines with the right sale type and stores every IRN for six years. 'FBR Digital Invoicing: Latest Updates, SROs and Deadlines (2026)' will carry the next circular or SRO as it lands.

Circular — a letter from FBR explaining how it reads a law change. It guides taxpayers and officers; the law itself sits in the Act.

Exempt supply — a sale of goods listed in the Sixth Schedule on which no sales tax is charged. Since the Finance Act 2026 it still needs an invoice with an FBR invoice number.

Advance receipt invoice — the invoice you issue when a customer pays before you deliver. The Finance Act 2026 wrote this term into the Act.

Simulated (fictitious) invoice — a tax invoice for a sale that never happened, issued so someone can claim input tax. Issuers go on a public register.

Input tax — the sales tax you paid on purchases, which you deduct from the tax you collect on sales. It can now be reversed with a 20% penalty if FBR cannot match it to your supplier's declaration.

Default surcharge — the extra charge under section 34 for tax paid late, similar to interest.