FBR ends sales tax and digital invoices on factory-to-warehouse transfers to curb harassment

The Federal Board of Revenue (FBR) has ruled that goods moved between a manufacturer’s own factory and warehouse are not a taxable supply, freeing businesses from charging sales tax and issuing digital invoices on such transfers in a move aimed at ending harassment of taxpayers by field officers.

The change was made through Sales Tax General Order No 25 of 2026, issued on Monday, Dawn reported.

What has changed

Under the order, goods moved from a factory to a warehouse, or between the two, are exempt from sales tax as long as both premises operate under the same Sales Tax Registration Number (STRN). Such transfers no longer need a digital invoice.

The FBR based the decision on the law itself. Section 2(33) of the Sales Tax Act 1990 defines a “supply” as a transfer involving a change of ownership or payment. When goods move between two premises of the same registered business, neither happens, so there is no taxable supply.

The paperwork that replaces the invoice

Instead of a tax invoice, businesses must now use a Stock Transfer Note (STN). According to the order:

• Each note must be numbered in sequence and endorsed as a stock transfer that is “Not a Taxable Supply”.
• The note must travel with the goods while they are in transit.
• Goods on the note are valued at cost, and the document must not look like a tax invoice.
• The receiving warehouse must acknowledge receipt and update its stock register, while the factory updates its own records under Rule 22.

When tax still applies

The exemption has a clear limit. If the receiving warehouse is registered under a different STRN, the movement is treated as a taxable supply. In that case a digital invoice is required and output tax must be accounted for in the normal way.

Limits on field officers

The most striking part of the order is aimed at the behaviour of tax staff on the ground. Field officers have been barred from demanding the national identity cards of drivers or detaining vehicles without cause. Physical inspection of goods is also prohibited, except for items listed in the Third Schedule of the Sales Tax Act.

The order leaves no doubt about the board’s intent. “Harassment of taxpayers, in any form or manner, is highly objectionable and shall not be tolerated,” it says.

Part of a wider push

The move is the latest in a series of steps by the FBR to reduce direct contact between officials and businesses. Last week the board set up a National Faceless Centre for tax audits, under which cases are picked by computer and assigned to officers the taxpayer never meets, a reform meant to cut officers’ discretion and the opportunities for corruption.

The timing is also significant for the government. An International Monetary Fund mission is in Islamabad for talks on the next reviews of Pakistan’s loan programme, in which revenue collection and tax administration are among the areas under review. At the same time, the business community has asked the FBR to extend the deadline for filing tax returns, citing problems with the online filing system.

Why it matters

For manufacturers, moving stock between their own factory and warehouse is routine. Until now, those movements required digital invoices, and the order’s new limits on officers point to a real problem with vehicles being stopped and drivers questioned on the road. By drawing a clear line between internal transfers and real sales, and by putting limits on field staff, the FBR is signalling that compliant businesses should be able to move their own goods without interference.

This article draws on reporting by Dawn.