Retailers Pay Rs 455B More Tax in FY25

In a surprising turn of fiscal events, Pakistan's retail sector contributed an additional Rs 455 billion in taxes during FY 2024-25, pushing their total income tax payments to Rs 617 billion. This figure is significantly higher than the Rs 484 billion paid by the sector the previous fiscal year, representing a sharp increase of Rs 133 billion. The jump isn't attributed to voluntary compliance but rather the result of stricter enforcement measures introduced by the Federal Board of Revenue (FBR), including mandatory advance tax payments and tighter withholding rules.

According to data presented by the Prime Minister’s Office and the FBR, this Rs 617 billion figure includes Rs 316 billion paid as advance tax, Rs 28 billion declared in filed returns, Rs 216 billion collected through withholding taxes, and another Rs 57 billion collected through other tax channels. A closer look reveals that Rs 237 billion of the advance tax came from retailers alone, while wholesalers and traders contributed Rs 30 billion and Rs 49 billion respectively.

The government’s strategy seems focused on expanding the tax base by tightening tax collection mechanisms and monitoring compliance more aggressively. This includes expanding the digital footprint of traders and integrating financial data through banking and real estate transactions. The withholding tax regimes under Section 236G and 236H were especially impactful, generating Rs 62 billion in income tax from retailers and wholesalers. Despite criticism, this method of tax enforcement appears to have achieved the desired results, drawing more commercial entities into the formal tax net.

Compared to other sectors, the retail segment showed the most dramatic growth in tax contributions, yet it still lags behind salaried individuals. During the same fiscal year, the salaried class contributed a whopping Rs 545 billion, while exporters, despite operating in dollarized markets, paid just Rs 180 billion. This ongoing disparity has fueled public discourse over tax equity, particularly as the salaried class continues to shoulder a disproportionate share of the national tax burden.

The rise in tax compliance is also reflected in the growing number of return filers. The number surged from 4.5 million last year to 7.2 million by June 2025. This growth was largely driven by improved enforcement, third-party data integration, and the fear of penalties for non-compliance. Additionally, customs clearance times are being streamlined—from 52 hours down to a targeted 12 hours—under broader reforms aimed at improving trade facilitation and revenue collection.

While the increased tax collection is being hailed as a success by the government, it has also raised concerns among small businesses and independent traders, many of whom are grappling with cash flow issues due to advance tax requirements and the burdens of documentation. Nonetheless, government officials argue that these policies are necessary for stabilizing the economy and fulfilling commitments made to international lenders like the IMF. The tax-to-GDP ratio, while still below desired levels, has improved by 1.5 percentage points in FY 2024-25, signaling incremental progress.

As the fiscal year concludes, this Rs 455 billion surprise contribution from retailers underscores a fundamental shift in how Pakistan is managing its domestic revenue. Enforcement is taking center stage over voluntary compliance, and while it’s effective in boosting short-term revenue, the long-term sustainability of such a model remains to be seen. If coupled with tax education, digital ease, and incentives for small traders, this could mark a turning point in Pakistan’s journey toward a broader, fairer tax base.