ISLAMABAD: A recent claim by the Prime Minister’s Office, stating that the retail sector contributed an additional income tax of Rs455 billion in the last fiscal year, has sparked debate and scrutiny, particularly due to the highly informal nature of the sector and a broad definition used for “retail.” The surprising figure was presented during a briefing by tax authorities to Prime Minister Shehbaz Sharif.
In an official statement, the PM Office highlighted a significant increase in tax collection from the retail sector, attributing it to “the integration of point-of-sale systems and stricter enforcement.” Officials from the Federal Board of Revenue (FBR) further elaborated, claiming total income tax payments from the retail sector in fiscal year 2024-25 reached Rs617 billion, with Rs455 billion being the additional amount compared to the previous year.
This Rs617 billion, they stated, included Rs316 billion in quarterly advance payments from three categories: wholesalers, retailers, and traders, along with some corporate entities.
However, sources within the FBR, speaking to The Express Tribune, raised concerns about the “loose definition” of the retail sector, which seemingly incorporated certain corporate firms, potentially inflating the reported figures. The substantial Rs316 billion in quarterly advance payments, given the informal structure of much of the retail sector, is also under critical examination.
PM Praises FBR Reforms, Urges Sustained Efforts
Prime Minister Shehbaz Sharif, during the review meeting on FBR reforms, lauded the progress made so far. He emphasized the critical need for sustained and time-bound efforts to overhaul the tax system to align with modern requirements.
Discussions during the meeting reportedly touched upon the tax burden distribution between the retail and manufacturing sectors, and the record Rs555 billion tax contribution made by the salaried class. Some participants voiced the opinion that manufacturing and salaried individuals were disproportionately burdened compared to their economic contribution.
According to data from the Pakistan Bureau of Statistics (PBS), the manufacturing sector’s share in the economy for FY25 was approximately 12%, while the wholesale and retail sectors collectively accounted for 18%.
FBR’s Definitional Discrepancy
FBR spokesman Dr. Najeeb Memon did not offer a detailed breakdown of the Rs455 billion additional income tax from the retail sector. However, another FBR official clarified that the high total collection of Rs617 billion was a “definitional issue,” resulting from the inclusion of various categories under the “retail sector” umbrella.
Based on this expanded definition, if the previous fiscal year’s (2023-24) collection was Rs484 billion, the reported additional Rs455 billion would logically bring the total to Rs940 billion, indicating a significant discrepancy with the FBR’s claimed Rs617 billion total. Sources indicated that under the new, broader definition, the net increase in collection for FY25 was Rs133 billion.
Breakdown of Retail Sector Contributions
The FBR officials provided a detailed breakdown of the Rs617 billion collection, categorizing income tax payments from wholesalers, traders, and retailers. This included:
Advance Income Tax: Rs316 billion in total, with wholesalers contributing Rs30 billion, traders Rs49 billion, and retailers Rs316 billion.
Admitted Income Tax: Rs28 billion, comprising Rs14 billion from traders, Rs5.3 billion from retailers, and Rs8.5 billion from wholesalers.
Withholding Taxes: Rs216 billion, broken down into Rs28 billion from wholesalers, Rs119 billion from traders, and Rs69 billion from retailers.
Other Taxes: Rs57 billion from these three categories.
Path Forward: Digitization and Enforcement
Prime Minister Sharif instructed the FBR to accelerate digital transformation, restructure its digital wing with a clear roadmap, and enhance enforcement to curb the informal economy.
He also emphasized the importance of engaging stakeholders, including businesses, traders, and taxpayers, in the reform process. The PM reiterated that tax system improvements should aim to boost national revenue while simultaneously easing the tax burden on ordinary citizens.
The meeting was informed that due to reforms and enforcement measures, the tax-to-GDP ratio saw a historic rise of 1.5% in FY25 compared to FY24, reaching 10.6 percent by the end of June 2025.
This, however, still falls short of the IMF condition to increase the ratio, despite record tax impositions. Furthermore, the number of income tax return filers significantly increased from 4.5 million in 2024 to over 7.2 million by June 30, 2025.
FBR officials also highlighted progress in the “faceless customs clearance system,” which is expected to reduce clearance time from 52 hours to just 12 hours in the coming three months.
