ISLAMABAD: Tax experts have raised serious concerns over the recently issued S.R.O. 2071(I)/2025, saying it lacks clarity and consistency in determining the classification criteria for Tier-I retailers under the Sales Tax Act, 1990.
In a formal communication addressed to the Chairman of the Federal Board of Revenue (FBR), senior tax lawyer and sales tax specialist Faraz Fazal Sheikh highlighted interpretational and drafting issues that have emerged after the issuance of the notification under Section 2(43A)(g) of the Sales Tax Act.
The new SRO makes it mandatory for distributors and retailers to integrate their businesses with the FBR’s digital system where their deductible monthly withholding tax exceeds Rs100,000 for distributors and Rs500,000 for retailers. However, experts say the criteria used to determine this threshold is unclear.
Faraz noted that Section 2(43A) itself defines a Tier-I retailer, stating that any retailer whose deductible withholding tax under Sections 236G or 236H of the Income Tax Ordinance, 2001, exceeds a threshold notified by the FBR within the previous twelve consecutive months, qualifies as Tier-I. Historically, the FBR had prescribed a threshold of Rs100,000 under Section 236H through S.R.O. issued in December 2023, but that notification omitted reference to Section 236G — creating ambiguity for manufacturers and distributors subject to 236G withholding.
The new S.R.O. 2071(I)/2025 attempts to address this by linking both Sections 236G and 236H. However, it introduces two separate thresholds (Rs100,000 and Rs500,000) without specifying which classes of retailers these apply to, causing further confusion.
Additionally, Faraz pointed out a legal inconsistency: while the parent law mandates assessment over “twelve consecutive months,” the new notification refers only to the “immediately preceding period,” a phrase that lacks precision. Under Section 2(43) of the Sales Tax Act, a “tax period” generally means one month — which could imply a one-month basis rather than twelve months, contradicting the Act itself. Such a deviation cannot be introduced through subordinate legislation, he stressed.
He recommended that the FBR issue a consolidated, revised notification under Section 2(43A)(g), clearly defining the applicable threshold(s) and ensuring consistency with the statutory twelve-month measurement period, while also distinguishing the application for Sections 236G and 236H.
