IMF asks FBR to provide timeframe of unveiling retailers' scheme

• Scheme aims to bring 3m shopkeepers into tax net.
• FBR says incoming finance minister will decide. 
• Scheme to be announced after grants approval.

ISLAMABAD: The International Monetary Fund (IMF) has asked the Federal Board of Revenue (FBR) for the exact timeframe for unveiling the simplified retailers' scheme which aims to bring three million shopkeepers into the tax net, The News reported Friday. 

In its reply, the country's revenue machinery has said that the incoming finance minister would make the final decision regarding the simplified retailers' scheme.

“The retailers' scheme is already prepared and will be announced when the government will firm up its decision and grant approval for moving ahead,” top official sources confirmed to The News. 

On February 3, the caretaker government finalised the much-awaited retailers' scheme to raise additional revenue. 

The IMF team, led by Mission Chief Nathan Porter and FBR high-ups, held a virtual meeting on Thursday whereby the global lender also inquired about the FBR’s plan for achieving the desired target of Rs9,415 billion on June 30, 2024.

“The IMF also inquired about the FBR’s capability to collect taxes from three million retailers,” the sources said, adding that the FBR told the IMF team it has deputed 147 district officers all over the country to broaden the tax base. 

Tackling three million potential taxpayers with such a meagre strength of just 147 district revenue officers, who are already burdened with the task of bringing other potential tax dodgers into the tax net, would be a hard nut to crack.

Secondly, the FBR assured the IMF team that they would be able to achieve the March 2024 tax collection target of Rs879 billion for the current fiscal year. 

The FBR faced a revenue shortfall of Rs33 billion in February 2024 and it would be crucial to achieve the ongoing monthly target in order to avert additional taxes for the remaining period of the current fiscal year.

Tax scheme  

The board has already prepared a simplified retailers' scheme. Pakistan Revenue Authority Limited (PRAL), has developed the mobile app “Tajir Dost”, which is a national business registry in which all retailers and traders will have to register. Already registered persons will have their names in the Tajir Dost database.

It is proposed that the quantum of indicative income to be determined equal to the annual rental value (determined at 10% of shop valuation) may be accepted to document the retail business and ensure subsequent filing of income tax returns.

The FBR is considering bringing online retailers into the tax net and the work has been underway in consultation with online marketplaces such as Daraz and others. It is yet to be seen how these online retailers will be brought into the tax net.

The scheme does not provide any concessional tax rates to shopkeepers except (i) an early bird discount of 50% tax reduction on the filing of the tax return for Tax Year 2023 between the date of announcement of the scheme and the date of the first instalment of payment; (ii) a 25% discount of tax if a lump sum payment for the entire year is made (For a current year this will mean the instalments of four months between March and June 2024).

The income tax paid under the scheme will be an advance tax to be treated as minimum tax but adjustable against total income tax payable for FY2024 and similar treatment for the next tax years i.e. there will be no refund of income tax paid under this scheme.

The shopkeeper will assess himself for FY2024 (and subsequently) like any other taxpayer will file his annual income tax return as per the standard income tax return forms and can claim the adjustment or refund of other adjustable advance taxes deducted or collected already in other heads e.g. on purchase of a motor vehicle, etc. The defaulters of monthly payments will face penal consequences like shop sealing or imposition of a monetary penalty equal to his monthly instalment due.

The scheme excludes companies that are operating as a unit of national or international chain stores or a firm of professionals with international affiliation and operating in offices in more than one province. The scheme, however, includes all other Tier-I retailers as envisaged under the sales tax as the scheme is being launched under the income tax.