Section 108B of Income Tax Ordinance, 2001 specifically addresses income tax levies on transactions conducted under dealership arrangements.
Updated up to June 30, 2021, the amendment establishes a structured approach to taxing such transactions, aiming to ensure fairness and transparency in the taxation of dealerships.
In a bid to fortify the taxation framework and bring greater clarity to dealership transactions, the Finance Act, 2021 introduced a significant amendment to the Income Tax Ordinance, 2001 through the unveiling of Section 108B.
The amended Section 108B reads: “Transactions under dealership arrangements.- (1) Where a person supplies products listed in the Third Schedule to the Sales Tax Act, 1990, or any other products as prescribed by the Board, under a dealership arrangement with the dealers who are not registered under Sales Tax Act, 1990, and are not appearing in the active taxpayers’ list under this Ordinance, an amount equal to seventy-five percent of the dealer’s margin shall be added to the income of the person making such supplies.
(2) For the purposes of operation of this section, ten percent of the sale price of the manufacturer shall be treated as dealers margin.”
This provision primarily targets transactions involving the supply of products listed in the Third Schedule to the Sales Tax Act, 1990, or other products prescribed by the Board under dealership arrangements. The focus is on dealers who are not registered under the Sales Tax Act, 1990, and are absent from the active taxpayers’ list under the Income Tax Ordinance.
Under this section, an amount equivalent to seventy-five percent of the dealer’s margin is to be added to the income of the person making the supplies. This approach is designed to ensure that tax is levied on the income generated through such dealership transactions, particularly when dealing with unregistered dealers.
To operationalize Section 108B, the amendment stipulates that ten percent of the sale price of the manufacturer shall be treated as the dealer’s margin. This mechanism provides a standardized method for calculating the portion of income subject to taxation under this section.
This amendment has been introduced to address concerns related to the tax treatment of transactions conducted under dealership arrangements, especially when involving unregistered dealers. By levying tax on a percentage of the dealer’s margin, the amendment seeks to bring about fairness and uniformity in the taxation of such transactions.
While this move has been commended for its efforts to close potential tax loopholes and ensure a level playing field, some industry stakeholders have expressed the need for clear guidelines on the identification and treatment of unregistered dealers.
The unveiling of Section 108B in the Income Tax Ordinance, 2001 signifies a targeted approach to taxation, specifically addressing transactions made under dealership arrangements. By introducing a structured mechanism for taxing such transactions involving unregistered dealers, the amendment aligns with the broader goal of fostering fairness and transparency in the taxation system in Pakistan. As tax authorities continue to refine the taxation framework, this provision is expected to contribute to a more equitable and robust taxation of dealership transactions.