ISLAMABAD: The Federal Board of Revenue (FBR) has recorded a 30 percent increase in withholding income tax collection from retailers during the first seven months (July to January) of the ongoing fiscal year 2025–26, according to official provisional data.
The data revealed that retailers paid Rs25.30 billion in withholding income tax during 7MFY26, compared to Rs19.45 billion collected in the same period of the previous fiscal year, reflecting a significant improvement in tax compliance and documentation within the retail sector.
January Collection Shows Slight Dip
Despite the overall growth trend, tax collection in January 2026 witnessed a marginal decline. The FBR collected Rs3.57 billion from retailers during the month, compared to Rs3.61 billion in January 2025, marking a nominal decrease of 1 percent on a year-on-year basis.
Withholding Mechanism Under Section 236H
Under Section 236H of the Income Tax Ordinance, 2001, manufacturers, distributors, dealers, wholesalers, and commercial importers are required to collect advance withholding tax at the time of sale to retailers. Similarly, distributors or dealers must collect tax when selling to wholesalers in the relevant sectors.
The law stipulates that:
• Advance tax is collected at prescribed rates from retailers at the time of sale.
• Credit for the tax collected is allowed when calculating the retailer’s final tax liability for the respective tax year.
This mechanism is designed to broaden the tax base, ensure steady revenue flows, and improve documentation of the retail economy.
Applicable Withholding Tax Rates
Currently, the withholding income tax rates on retailers are:
• 0.5% for retailers listed on the Active Taxpayers List (ATL)
• 2.5% for retailers not appearing on the ATL
The significantly higher rate for non-filers aims to encourage registration, documentation, and tax compliance among retail businesses.
Strengthening Revenue Collection
Tax experts believe the sharp rise in collection reflects improved enforcement, enhanced data integration, and stricter monitoring by tax authorities. The increased revenue from retailers is expected to contribute meaningfully to the government’s broader fiscal consolidation efforts.
Officials say sustained reforms in the retail taxation framework could further enhance compliance, reduce tax evasion, and help stabilize Pakistan’s revenue base in the coming months.
