Islamabad, April 23, 2024 – The Federal Board of Revenue (FBR) took a significant step towards enhancing tax compliance by issuing a directive for the mandatory integration of 1,680 Tier-1 retailers into its Point of Sale (POS) system.
This move is aimed at tightening tax controls and ensuring accurate reporting of sales data.
The announcement follows the introduction of sub-section (6) to section 8B of the Sales Tax Act, 1990, enacted by the Finance Act, 2019. This legislation stipulates a penalizing mechanism, where the input tax of a Tier-1 Retailer (T-1R) failing to integrate their retail outlets as prescribed will see their input tax reduced by 60%, a steep increase from the initial 15% set in 2019.
According to the FBR, Tier-1 retailers are defined under clause (g) of section 2(43A) of the Sales Tax Act, 1990, as retailers whose deductible withholding tax under section 236H of the Income Tax Ordinance, 2001 exceeded Rs. 100,000 in the twelve months preceding. These retailers are now obligated to register and integrate their systems with the FBR’s computerized system for real-time reporting of sales.
The regulatory framework was detailed in S.R.O 1842(I)/2023, issued on December 21, 2023. It lays down the conditions and processes for the mandatory integration of these retailers with the FBR’s POS System by May 31, 2024.
As part of this initiative, the FBR has also released a comprehensive Sales Tax General Order (STGO) outlining the procedures for integration. The document provides a list of the identified Tier-1 retailers, now publicly available on the FBR’s website. Retailers contesting their classification as Tier-1 must appeal to the Commissioner concerned for exclusion from the list, following the procedures established in STGO 17 of 2022.
Starting June 2024, any Tier-1 retailer who has not integrated their POS system will face automatic disallowance of their input tax claim upon filing their Sales Tax Return for the month of June. This will result in an immediate tax demand for the same amount, enforced without further notice or proceedings.
The FBR’s initiative is part of a broader strategy to digitize and automate tax collection processes, making the system more efficient and transparent. By leveraging technology, the Board aims to minimize tax evasion and improve compliance rates among major retail players.
Tax experts view this move as a significant step towards modernizing tax administration and enhancing the government’s capability to monitor and collect sales tax more effectively. It is also expected to level the playing field among retailers by ensuring that all transactions are recorded and taxed appropriately.
Retail associations and business communities have been urged to comply with the new regulations, as failure to integrate could lead to substantial financial penalties and disrupt business operations. The FBR has also assured continuous support and guidance for retailers during the integration process to facilitate a smooth transition.
This enforcement of POS integration represents a critical effort by the FBR to strengthen the tax base in Pakistan, which is essential for the country’s economic stability and development.
