Withholding tax rates on retailers during 2021-2022

Withholding tax rates on retailers during 2021-2022

Islamabad, January 12, 2024 – The Federal Board of Revenue (FBR) has announced the withholding tax rates applicable to retailers at the time of sales by manufacturers for the fiscal year 2021-2022.

The update comes following the amendments introduced through the Finance Act, 2021, which became effective from July 01, 2021.

The withholding tax rates, as per Section 236H of the Income Tax Ordinance, 2001, will be applicable to various sectors. According to the FBR, the tax rate is set at 0.5% of the gross amount of the sale. However, this rate increases to 1% if the entity is not included in the Active Taxpayers List (ATL) issued by the FBR.

The scope of these withholding tax rates encompasses several industries, including electronics, sugar, cement, iron and steel products, motorcycles, pesticides, cigarettes, glass, textiles, beverages, paint, foam sector, pharmaceuticals, poultry and animal feed, edible oil and ghee, auto-parts, tyres, varnishes, chemicals, cosmetics, and IT equipment.

It is noteworthy that the withholding tax rates are adjustable against the payable liability of taxpayers, providing flexibility in managing their tax obligations. This mechanism aims to streamline the taxation process and ensure compliance within the specified sectors.

The move by the FBR is in line with the broader objective of enhancing tax collection and ensuring transparency in financial transactions. By updating and implementing withholding tax rates, the FBR aims to promote a culture of tax compliance among retailers and entities operating in the specified sectors.

The FBR’s decision to categorize various industries under the withholding tax regime reflects a targeted approach to taxation. By focusing on specific sectors, the revenue body aims to address potential tax evasion concerns and ensure that all economic activities contribute to the national exchequer in a fair and transparent manner.

The implementation of withholding tax rates is part of the FBR’s ongoing efforts to modernize the tax system, incorporating legislative changes to adapt to evolving economic landscapes. It also emphasizes the importance of staying current with amendments introduced through finance acts to ensure accurate and effective tax compliance.

While the withholding tax rates provide a mechanism for immediate tax collection at the time of sale, the adjustability against payable liability allows for a more nuanced and balanced approach, ensuring that businesses can manage their tax responsibilities in a manner aligned with their overall financial obligations.

The FBR’s issuance of withholding tax rates for retailers in the fiscal year 2021-2022 represents a significant step toward achieving a fair and transparent tax regime. As businesses navigate the intricacies of tax compliance, these rates provide clarity and guidance, contributing to the broader goal of a robust and efficient taxation system in Pakistan.