The federal government is contemplating imposing a 2.5% income tax on the entire trading chain, from manufacturers to retailers, in the upcoming budget for fiscal year 2024-25. This proposal, initially recommended by the Ashfaq Tola-led Reform and Revenue Mobilisation Commission (RRMC) last year, aims to streamline tax collection and generate significant revenue.
The RRMC suggested a 1% tax on all wholesalers, distributors, and retailers on the gross value of their supplies, which could potentially collect at least Rs400 billion annually. Currently, distributors are taxed at 0.7% under Section 236-G, and non-filer retailers at 1% under Section 236-H. The new proposal seeks to merge these sections and apply a uniform 2.5% tax rate on all sales from manufacturers to retailers.
The wholesale and retail sector, contributing nearly one-fifth to the economy, paid only Rs24 billion in taxes from July to May. The Federal Board of Revenue (FBR) data shows sales worth Rs3.1 trillion to 46,000 registered wholesalers and Rs800 billion to 97,000 unregistered distributors and wholesalers in the first nine months of the current fiscal year.
Additional proposals include raising the withholding tax by at least 1% on all imports, except by commercial importers, and increasing the income tax rate on contractors, professional service providers, and sportspersons. These measures are expected to help the government meet its ambitious tax collection target of Rs 13 trillion for the next fiscal year, necessitating Rs 2 trillion in new taxes.
