FBR plans to abolish 4% ‘further sales tax’

Pakistani tax authorities are preparing to introduce the largest documentation measure yet in the upcoming federal budget (2025-26), requiring sales tax registration for the entire supply chain—including dealers, wholesalers, and retailers—by abolishing the 4% "further sales tax".

Sources told Nukta that eliminating the 4% "further sales tax" will initially cause significant revenue losses for the Federal Board of Revenue (FBR). However, it is expected to bring the entire supply chain—from manufacturers to retail outlets—into the documented economy, yielding greater long-term revenue gains.

What is further sales tax?

Further sales tax is charged on supply of taxable goods to a person who has not obtained registration or is not an active taxpayer.

Despite the FBR's efforts to register dealers, wholesalers, and retailers, many have avoided joining the sales tax net by paying the 4% extra tax instead of complying with documentation requirements.

In 2023, the FBR raised the "further sales tax" rate from 3% to 4% through an amended Finance Bill to discourage sales to unregistered buyers. Currently, the 4% tax applies to supplies made to unregistered persons.

Under the law, the "further tax" is imposed on taxable goods supplied by registered sellers to buyers without a valid sales tax registration or inactive taxpayers. The rate was increased to 4% under Section 3(1A) of the Sales Tax Act via the Finance Act, 2023.