Retail Sector Slips through FBR Net

Sales tax gap balloons to Rs3.6tr; enforcement drive under fire for lack of details

ISLAMABAD — The retail sector has once again slipped through the Federal Board of Revenue’s (FBR) net, leaving behind a massive hole in the country’s sales tax collection. In a candid assessment shared with the Prime Minister’s Office, the tax authority admitted it could not pin down retailers, who remain too fragmented and informal to bring on board.

Officials said the sales tax gap had swelled to Rs3.6 trillion in the last fiscal year, almost equal to the Rs3.9 trillion actually collected. Out of this, retailers alone accounted for Rs310 billion, underscoring the scale of leakage.

The FBR has tried time and again to rope in traders through restrictions on large purchases, perks for tax officials, and incentive schemes. Billions have been handed out in cars and salary hikes to spur the machinery, but the results have not added up. The retail sector has kept slipping away, leaving the government with little to show for years of effort.

Even as it played up enforcement, claiming Rs874 billion collected through compliance measures last year, the FBR failed to hand out details despite repeated queries. Sources said the authority admitted to the PM that its best bet was to clamp down at the manufacturing stage, where collection could be locked in more securely.

Digital invoicing and supply-chain monitoring are also being rolled out, but critics point out that the system was watered down after FBR quietly let cash deposits pass off as digital transactions, undermining the very drive meant to track large cash deals.

Sector-wise data showed that textiles alone swallowed up Rs814 billion of the gap. Petroleum and food products each accounted for Rs384 billion, chemicals and fertilizers Rs326 billion, iron and steel Rs200 billion, electronics Rs193 billion, and beverages Rs101 billion.

The revenue shortfall has already triggered friction. In Lahore, traders accused tax officers of leaning on businessmen, prompting the Chamber of Commerce president to demand a commissioner’s transfer and threaten resignation.

Despite trumpeting enforcement, the FBR missed its overall tax target by Rs1.2 trillion, even after piling on record new measures. Officials claim the tax-to-GDP ratio has inched up to 10.24% and will keep moving towards IMF’s benchmark of 13.7% by 2027. But as long as retailers keep slipping out of the net, plugging the chronic gap looks out of reach.