September 21, 2020

FBR Provides Framework For Bringing Retail Sector Into Tax Net

The Federal Board of Revenue has formed three schemes to bring the retail sector into the tax net. The proposed schemes are as follows; simplified tax regime, fixed tax regime, and issuance of business licenses. FBR will forward the proposal for the launching of the schemes in the cabinet for final approval in the coming days.

The government is trying hard to get the business community registered in the tax net but that has proved to be an extremely difficult task. Traders associations conducted nationwide shutter down strikes to protest against the austerity measures of the government and have threatened the government with another 4 days shutter down strike in August, after Eid-al-Azha.

The economic affairs minister Mr. Hammad Azhar has said that the retail sector contributes 20pc to the total GDP but contributes only 0.25 pc in total taxes collected from the country.

For traders, the government has formed a ‘simplified tax regime’ and the FBR is still taking feedback from the traders for ways to improve the scheme. The scheme has the following specifications:

  • Tax will be charged on the amount remaining after the expenditures are subtracted from the receipts and traders will not have to keep a record of all their transactions.
  • Traders who avail this scheme will not be subject to any audit.
  • Only the traders who have a turnover of less than 50 million, self-invested equity of less than 50 million, cost of fixed assets less than 100 million and less than five employees, would be eligible for this scheme.
  • Non-filers would have to register themselves on the Integrated Risk Information System (IRIS) through the FBR website.
  • Any person opting for the scheme would have to file the return of income and wealth statement along with evidence of payment of due tax.
  • Tax rates will be calculated as per division 1, part1 of the first schedule of the income tax ordinance 2001.

Another scheme that the FBR has proposed is for the small shopkeepers, knows as the ‘Special Procedure for Payment of Taxes by Small Shopkeepers’. Following are the specifications of the scheme:

  • Shop covered area should be less than 300 square feet
  • Jewelers, wholesalers, warehouses, real estate agents, builders/developers, doctors, lawyers, international/national chain stores, shop in an air-conditioned shopping mall/plaza/center, retailer with credit/debit card machine, retailer whose electricity bill exceeds Rs300,000 (during the last 2 months), any person covered under the Section 99C of the Income Tax Ordinance and charted accountants are not eligible for this scheme.
  • 2pc of the total turnover or the fixed tax rate as notified by the FBR would be charged as tax.
  • Rs 35,000 will be charged from shops located in the areas specified as Category A, Rs40,000 from Category B if the shop size is between 150-300 square meters, Rs20,000 if shop is less than 150 square meters in size and is located outside the Category A area, Rs25,000 if shop is greater than 150 square meters in size and is located outside Category A locations.
  • Shopkeepers will not be subject to any audit
  • Shopkeepers who pay taxes under this scheme will be provided a sticker from the bank, upon submission of taxes, which they would have to display in any prominent location of their shop.
  • A return form would have to be submitted by the shopkeeper.

Moreover, FBR has made the ‘registration and licensing of the businesses’ a mandatory condition. FBR has automated the procedure for business registration and licensing. Any person willing to register can do so through any FBR application. The software will analyze the particulars provided by the applicant and will issue a system that generated a license to the applicant. Furthermore, any person who is already a filer will be assumed as an applicant by the system and a computer-generated license will be emailed to the registered email address.

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