ISLAMABAD: Sales tax experts have raised serious concerns over the new S.R.O. 2071 (I)/ 2025, which does not provide a clear, consistent, or enforceable framework for the classification of Tier-I retailers.
Faraz Fazal Sheikh, a senior lawyer and sales tax expert, has written a letter to the FBR Chairman on the clarification and recommendations regarding ambiguities in the implementation of S.R.O. 2071 (I)/ 2025 under Section 2 (43A)( g) of the Sales Tax Act, 1990.
There are certain interpretational and drafting issues arising out of the recent S.R.O. 2071 (I)/ 2025, which have created confusion in the implementation of Section 2 (43A) (g) of the Sales Tax Act, 1990.
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According to the new notification, the FBR has made it mandatory for distributors and retailers to integrate their businesses with the FBR in cases where a deductible monthly withholding tax exceeds Rs 100,000 for distributors and Rs 500,000 for retailers.
Faraz said that Section 2 (43A) of the Sales Tax Act, 1990, defines a “Tier-I retailer.”
Sub-clause (g) provides that: “A retailer whose deductible withholding tax under Sections 236G or 236H of the Income Tax Ordinance, 2001, during the immediately preceding twelve consecutive months, has exceeded the threshold as may be specified by the Board through notification in the official Gazette.”
Accordingly, the law itself envisages that the threshold is to be prescribed by the FBR through a Gazette notification.
Both Sections 236G (manufacturer/ distributor withholding) and 236H (retail/ wholesale withholding) are covered, and the reference period is twelve consecutive months.
Earlier, in notification (S.R.O. (I)/ 2023 dated 21-12-2023), the FBR in exercise of its powers under Section 50 read with section 2 (43A) (g) notified that the prescribed threshold under sub-clause (g) of clause (43A) of Section 2 shall be a retailer whose deductible withholding tax under Section 236H of the Income Tax Ordinance, 2001, has exceeded Rs. 100,000.”
This notification; however, mentioned only Section 236H and omitted reference to Section 236G, creating ambiguity regarding manufacturers’ and distributors’ transactions.
The recent S.R.O. 2071 (I)/ 2025 attempts to expand the scope by referring to both sections 236G and 236H, stating that: “Retailers whose deductible withholding tax under Sections 236G or 236H … exceeds one hundred thousand rupees or, as the case may be, five hundred thousand rupees, shall be required to integrate their business for the purposes of clause (g) of sub-section (43A) of Section 2 of the Sales Tax Act, 1990.”
However, this new notification introduced two separate thresholds (Rs. 100,000 and Rs. 500,000) without specifying the distinction or applicability between certain categories of retailers.
Faraz pointed out that the parent Act (Section 2 (43A) (g)) explicitly states that the threshold is to be determined based on “the immediately preceding twelve consecutive months.” However, S.R.O. 2071 (I)/ 2025 uses the phrase “immediately preceding period”, which is vague and legally inconsistent.
Under Section 2(43) of the Sales Tax Act, a “tax period” ordinarily means one month, unless otherwise specified. Hence, if interpreted literally, “preceding period” could mean one preceding month, which contradicts the twelve-month test prescribed by law.
This inconsistency creates a potential statutory conflict between the parent Act and the subordinate legislation, since the measurement period cannot be altered through an S.R.O. issued under delegated authority.
Faraz recommended that the FBR may issue a consolidated and clarifying notification explicitly under Section 2 (43A) (g) of the Sales Tax Act, 1990, prescribing a uniform or category-wise threshold applicable to both 236G and 236H.
Copyright Business Recorder, 2025