The Federal Board of Revenue (FBR) is considering an increase in the withholding tax rate for supplies to non-registered wholesalers and traders following a disappointing turnout from voluntary registration under the Tajir Dost Scheme (TDS).Â
Despite extensive efforts to encourage registration by the April 30 deadline, fewer than 100 traders have signed up for Tajir Dost Scheme.
As per news reports, the FBR is now set to implement a heightened withholding tax rate of 10% on supplies to non-registered distributors, a significant increase from the current rate of 0.2%.Â
This change is due for announcement in the 2024-25 budget and is expected to be implemented starting July 1.
The increased tax is designed to cascade through the supply chain, affecting manufacturers and importers, who will pass the tax down to retailers.Â
Currently, registered traders pay a withholding tax of 0.1%, while non-registered ones are taxed at 0.2%.Â
The FBR estimates that the initiative could generate an additional revenue of Rs400 billion to Rs500 billion annually.
Furthermore, the FBR is considering extending the voluntary registration deadline beyond April 30 and is planning mandatory registration post-deadline, with non-compliance attracting penalties under Section 182 of the Income Tax Ordinance 2001.
Despite these efforts, the trading community, represented by the All Pakistan Association of Traders and Traders Action Committee Islamabad, has criticised the FBR for not addressing their concerns adequately, particularly citing a lack of effective awareness campaigns for small shopkeepers.Â
They demand an extension of the registration period and better engagement from the FBR.
The FBR’s proposed increase in withholding tax rates for non-registered wholesalers and traders aims to address low voluntary registration under the Tajir Dost Scheme. With fewer than 100 traders enrolled, the move signals a significant shift towards enforcement measures to broaden the tax base. The anticipated increase to 10% from the current 0.2% withholding tax rate highlights the severity of the issue and its potential impact across the supply chain. Despite estimates of substantial revenue generation, concerns from the trading community underscore the need for more effective communication and engagement strategies from the FBR. Extending the registration deadline and enhancing awareness campaigns could foster better compliance and mitigate resistance from stakeholders.