Govt mulls bringing small, medium retailers into tax net

ISLAMABAD: The government is mulling over options to bring millions of small and medium retailers into the tax net by introducing a reduced fixed sales tax rate as well as decreasing the minimum turnover tax from 1.5% to 0.5% in budget 2020-21, reported The News on Sunday.

One tax expert suggested to the government that the retailers should be incentivised in such a way that a portion of collected taxes from an area should be utilised on its development.

The Federal Bureau of Revenue (FBR) is considering different proposals to bring retailers into the tax net because all schemes introduced in the past failed to lure them.

“We are considering giving them an incentive but will ensure effective enforcement against those who will not come into the tax net,” top official sources confirmed to The News.

“All proposals are on the table at the moment,” said the official, adding that an important meeting in this regard was scheduled to be held in Q Block (Finance Ministry) at Pak Secretariat to finalise major features of the taxation side. The FBR high-ups are preparing different proposals to integrate data bank so that the available information can be diverted into taxability.

The official added that the FBR had already placed the GST rate at 14% for tier-1 retailers of the textile/garments sector who would connect with the Point of Sale (POS) software. “If the sale is determined on an actual basis, the rate can be further reduced because the retailers do not prefer to show their actual sale,” an FBR official said.

It is under consideration that all those retailers of tier-1, who would connect with POS, should be further incentivised and the rate of tax should be reduced to 12%. There is a demand for tier-1 retailers to bring down the GST rate into single-digit; however, the government might consider bringing it around 10 to 12%.

For small retailers, the government had failed to implement any scheme. The option to introduce a special incentive-based scheme where there will be minimum tax to lure small retailers to bring into the tax net, is again under consideration.

The retailers and business community are trying to convince the government for the abolishing of CNICs provisions on purchases of Rs50,000 but the Bureau official said that it could not be abolished but the limit might be increased in the upcoming budget up to purchases of Rs100,000.

When contacted, renowned economist Dr Ayesha Ghous Pasha, who is an MNA from PML-N said that there was a need to bring much-desired reforms into FBR as its capacity should be built to utilise the data of withholding taxes to bring potential people into the tax net.

She said that the withholding taxes were introduced to broaden the tax base but the FBR started relying upon the easy way of collecting taxes as they collected WHT through withholding agents. Dr Pasha added that the FBR should be given a realistic target and reminded that the tax target was fixed at Rs5.5 trillion, which everyone knew from day one would be a non-starter and could not be achieved. So next year's target should be fixed on realistic grounds, she added.

Former FBR member Shahid Hussain Asad added that the rate of minimum tax at 1.5% of turnover is too much. Instead of giving more tax, it discourages taxpayers to declare their true sales.

It is proposed that the rate of minimum tax should be reduced to 0.5%.

However, to discourage those who declare loss habitually, it is suggested that if someone declares loss (except loss wholly due to depreciation) for a consecutively third year or during last 10 years loss (except loss wholly due to depreciation) was declared in more than five years in aggregate, the rate of minimum tax should be 5% of their turnover.

Originally published in The News