Retailers react to new advance income tax

LAHORE: The federal government has introduced new Advance Income Tax, which affects retailers, fast-moving consumer goods (FMCGs) and supply chain.

Under the Finance Bill 2024-25, the government introduced a 2.5 percent advance income tax on retailers, assigning the FMCG sector as ‘withholding agents’, but this change has led to significant concern among retailers who argue that it is not the manufacturers’ responsibility to collect such taxes.

The government’s decision has shifted the tax collection responsibility to consumer goods manufacturers instead of implementing structural reforms to bring retailers into the tax system. In cities like Karachi and Lahore, many retailers are reacting by returning 30 percent to 35 percent of dispatched consignments, rejecting the government’s new measures.

Some experts recommend that the government engage with stakeholders and clearly communicate the rationale behind this policy to gain support.“This approach may not be effective with an unregistered retailer base,” commented a tax expert.

The potential consequences include increased costs of goods, reduced sales, and decreased demand. Perishable goods, particularly in the dairy sector, may face significant disruption, potentially affecting the entire supply chain.