The Federal Board of Revenue (FBR) has proposed eliminating the 4% “further sales tax” currently levied on supplies to unregistered persons in the upcoming Federal Budget 2025–26. This move is being positioned as one of the most significant steps towards formalizing the economy.
The proposal aims to abolish Section 3(1A) of the Sales Tax Act, 1990, a provision originally introduced in 1998, removed in 2004, and reintroduced in 2013. Initially designed to penalize non-registration and encourage businesses to enter the tax net, the FBR now considers it counterproductive.
According to an internal proposal discussed during the FBR Board meeting on May 29, 2025, chaired by the FBR Chairman, the further tax has inadvertently incentivized businesses to remain unregistered. By simply paying the additional 4%, many dealers, wholesalers, and retailers have avoided formal registration, resulting in a largely undocumented supply chain and reduced revenue collection.
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While the removal of this tax may lead to short-term revenue losses, the FBR anticipates a long-term gain through a broader tax base as more businesses become registered and documented.
