FBR to Abolish 4% Further Sales Tax to Bring Unregistered Dealers, Wholesalers & Retailers Under Tax Net

The Federal Board of Revenue (FBR) has proposed abolishing the 4 percent “further sales tax” currently imposed on supplies made to unregistered persons in the upcoming federal budget for 2025– 26, sources have informed ProPakistani. This will be the largest documentation measure yet in the upcoming federal budget (2025-26) by FBR. It requires sales tax registration for the entire supply chain, including dealers, wholesalers, and retailers, by abolishing the 4% “further sales tax”. The amendment seeks to omit Section 3(1A) of the Sales Tax Act, 1990, which was originally introduced in 1998, removed in 2004, and reinserted in 2013. Although the measure was intended to penalize non-registration and encourage formalization, the FBR now believes it has become counterproductive. According to an internal proposal discussed at the FBR Board meeting on May 29, 2025, chaired by the FBR Chairman, the current law inadvertently facilitates businesses in avoiding registration. By paying the further tax, many dealers, wholesalers, and retailers have remained outside the tax net, resulting in a largely undocumented supply chain and undermining revenue potential. In 2023, the rate was raised from 3 percent to 4 percent to further discourage unregistered purchases. However, the FBR notes that the increased rate has not achieved its desired effect and has instead legitimized non-registration. While this move may cause a short-term dip in revenue due to the additional tax, the FBR aims for a more substantial expansion of the tax base in the long run through increased documentation.