Sales Tax Act – Experts Flag Ambiguities in New SRO on Tier-I Retailers
Islamabad: Citing discrepancies and ambiguity in establishing the classification criteria for Tier-I retailers under the Sales Tax Act, 1990, tax experts have voiced grave concerns about the Federal Board of Revenue’s (FBR) recently issued S.R.O.2071(I)/2025.
In a detailed letter to the Chairman of the Federal Bureau of Revenue, senior tax lawyer and sales tax specialist Mr. Faraz Fazal Sheikh identified a number of drafting and interpretation errors in the notice issued under Section 2(43A)(g) of the Sales Tax Act.
Ambiguity in Threshold Determination
The notification mandates that both distributors and retailers integrate their business operations with FBR’s Point of Sale (POS) system if their deductible monthly withholding tax exceeds Rs. 100,000 (for distributors) or Rs. 500,000 (for retailers).
However, experts contend that the basis for determining these thresholds has not been adequately defined.
Section 2(43A) of the Sales Tax Act already outlines the definition of 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 during the previous twelve consecutive months shall be classified as Tier-I.
Previously, the FBR had prescribed a threshold of Rs. 100,000 through an S.R.O. issued in December 2023 under Section 236H. However, Section 236G was not mentioned in that notification, which left manufacturers and distributors who fall under that category with ambiguous interpretations.
Dual Thresholds make things even more confusing
S.R.O. 2071(I)/2025 adds Sections 236G and 236H to fix a mistake made earlier. Still, it sets the same limits for everyone, Rs. 100,000 and Rs. 500,000, without saying what the rules are for each type of taxpayer.
According to tax consultant, the two-threshold process may undermine the objective of harmonized compliance by leading to misinterpretations and disparities in the application of the rules across various business domains.
Legal Problems and Inconsistencies in Interpretation
Mr. Faraz also said that there was a legal difference between the subordinate legislation and the main law.
The new notification talks about the “immediately preceding period” in a way that isn’t clear, even though Section 2(43A) clearly says that the evaluation should be based on a period of “twelve consecutive months.”
According to Section 2(43) of the Sales Tax Act, a “tax period” is usually one month long.”Immediately preceding period” may be interpreted by some as one month rather than twelve.
He stressed that subordinate legislation cannot change the statutory definition because that would go against the parent law, which is not allowed in a legislative hierarchy.
Recommendations for Rectification
In view of the above, experts have recommended that the FBR:
- Issue a consolidated and revised notification under Section 2(43A)(g);
- Clearly define the applicable thresholds for both Sections 236G and 236H;
- Ensure consistency with the statutory twelve-month measurement period; and
- Provide explicit differentiation between distributors, manufacturers, and retailers for the purpose of integration under the POS regime.
Such a step, they assert, would ensure legal certainty, compliance uniformity, and administrative efficiency, while minimizing interpretational disputes in the classification of Tier-I retailers under the Sales Tax Act.