Unregistered retailers: 2.5pc advance tax stirs up a hornet’s nest

ISLAMABAD: The slapping of 2.5 percent advance income tax on unregistered retailers under the Finance Act, 2024, has stirred up a hornet’s nest, thrusting the entire fast-moving consumer goods (FMCG) sector into the role of withholding agents.

This move has ignited fury among retailers, who vehemently refuse to shoulder this tax burden, declaring it is not the manufacturers’ right to demand such payments.

“Why should we pay this new 2.5 percent income tax to suppliers,” retailers questioned.

They added that if there is a need for payment of any further income tax that should be paid by the manufacturer directly to the Federal Board of Revenue (FBR).

FBR issues list of unregistered retailers

Around 60 percent of the goods supplied by the FMCG sector to the unregistered retailers have been returned back to the manufacturers during the last few days.

The government’s sly manoeuvre has conveniently shifted the tax collection responsibility onto consumer goods manufacturers, bypassing the need for crucial structural reforms to integrate retailers into the tax net.

Major cities like Karachi and Lahore are witnessing retailers rebelling, returning a staggering 30 per cent to 40 per cent of dispatched consignments in outright defiance of the government’s latest measures. Experts are sounding the alarm, urging the government to urgently engage and communicate to generate support for this controversial policy.

“This arm-twisting policy will not work with a disorganised retailer base,” said a tax expert.

The fallout is poised to be catastrophic: skyrocketing costs of goods, plummeting sales, and a devastating blow to demand. Perishable goods, especially in the dairy sector, face severe disruption, threatening to unravel the entire supply chain.

The stakes have never been higher as this explosive tax threatens to upend the market and wreak havoc on the economy.

Copyright Business Recorder, 2024