FBR Notifies Tax Rates on Sales to Distributors for 2024

FBR Notifies Tax Rates on Sales to Distributors for 2024

Karachi, January 24, 2024 – The Federal Board of Revenue (FBR) has taken a significant step in its tax policy for the year 2024 by notifying advance tax rates on sales to distributors.

This move, detailed in the updated Income Tax Ordinance, 2001, aims to streamline tax collection processes and ensure a fair and transparent taxation system in Pakistan.

Under Section 236G of the Ordinance, the FBR outlines the obligations of manufacturers or commercial importers in specific sectors. These sectors include pharmaceuticals, poultry and animal feed, edible oil and ghee, auto-parts, tyres, varnishes, chemicals, cosmetics, IT equipment, electronics, sugar, cement, iron and steel products, fertilizer, motorcycles, pesticides, cigarettes, glass, textile, beverages, paint, or foam. At the time of sale to distributors, dealers, and wholesalers in these sectors, the FBR mandates the collection of advance tax at rates specified in Division XIV of Part IV of the First Schedule.

The Section elaborates that every manufacturer or commercial importer must collect advance tax from the distributors, dealers, and wholesalers they sell to. The rate of this advance tax is to be determined based on the sector involved. The credit for the tax collected shall be allowed when computing the tax due by the distributor, dealer, or wholesaler on their taxable income for the tax year in which the tax was collected.

The specified rates for the collection of tax under Section 236G are outlined in the following table:

1. Fertilizers: 0.7%

2. Other than Fertilizers: 0.1%

It is noteworthy that a provision has been included to address the rate of advance tax on sales to distributors, dealers, or wholesalers of fertilizer. If these entities are already appearing on both the Active Taxpayers’ Lists issued under the provisions of the Sales Tax Act, 1990, and the Income Tax Ordinance, 2001 (XLIX of 2001), the rate of advance tax for the fertilizer sector shall be reduced to 0.25%.

This strategic move by the FBR aligns with the broader efforts to enhance tax compliance, promote a transparent business environment, and ensure a fair distribution of the tax burden among different sectors. The advance tax rates are expected to contribute to a more predictable and stable taxation system, providing businesses with clarity on their financial obligations and promoting a culture of tax responsibility.

As businesses operating in the specified sectors adjust to the new advance tax rates, the FBR anticipates a more efficient and effective tax collection mechanism, ultimately contributing to the overall economic development of the country.