FBR to raise direct tax ratio through monitoring retail transactions

KARACHI: The tax authorities have launched initiatives to increase the ratio of direct taxes through surveillance of indirect taxes in the retail sector.

In this regard, the Federal Board of Revenue (FBR) focused on big retailers to monitor their sales and purchases. It has prepared a mechanism to check retailers, suppliers and their customers, official sources said.

The purpose of monitoring the retail sector to identify earnings of this sector and suppression of sales by their suppliers and importers.

To enforce laws related to the real-time sharing of transactions, the revenue board identified over 6,700 big retailers and asked them to integrate their sales with the tax system by August 15, 2021.

The share of direct taxes in total tax is 41 per cent, according to the estimates for the fiscal year 2020/21. This share has improved, compared with the average 35 per cent during the last five years; however, concerns are still there as the major portion of direct taxes comes in the shape of indirect taxes, i.e., withholding tax.

The FBR sources said the share of retail sector to the GDP is over 18 per cent but their contribution in the tax is mere one per cent. This shows a huge gap in this sector, they added.

Over the last several years, the FBR took many initiatives to document the transactions of retailers and bring them into the tax net but due to strong business lobbies, the tax authorities failed to get the desired results.

However, from December 1, 2019, the FBR launched a new system under which it categorised the retailers and made it mandatory for the Tier-1 retailers to integrate their sales with the FBR’s portal.

The sources said the revenue board has now adopted a strategy to bring the retailers in the tax net in a phased manner. In this regard, the Tier-1 retailers have been defined under the Sales Tax Act, 1990.

The Tier-1 retailers have been defined as a retailer operating as a unit of a national or international chain of stores; a retailer operating in an air-conditioned shopping mall, plaza or centre, excluding kiosks; a retailer whose cumulative electricity bill during the immediately preceding 12 consecutive months exceeds Rs1,200,000; a wholesaler-cum-retailer engaged in bulk import and supply of consumer goods on wholesale basis to the retailers, as well as on the retail basis to the general body of the consumers; a retailer, whose shop measures 1,000 square-feet in area or more or 2,000 square-feet in area or more in the case of retailer of furniture; a retailer who has acquired point of sale for accepting payment through debit or credit cards from banking companies or any other digital payment service provider authorised by the State Bank of Pakistan; and any other person or class of persons as prescribed by the board.

An official at the Regional Tax Office (RTO) Karachi said the FBR initially announced to block input tax claims of those retailers, who had been identified but failed to integrate their sales by August 15, 2021.

“However, as per [the] law, the failure to integrate with the FBR system was not limited to holding input tax claim,” the official said, adding that the tax authorities would also initiate harsh measures.

These measures will include imposition of a penalty of Rs1 million. In case the retailers remained non-compliant after imposition of the penalty, then their business premises will be sealed till the integration of sales, the official added.

The tax authorities were ensuring that all the Tier-1 retailers are integrated and their declared annual income and assets are aligned with their businesses, the official said.

Through the integration, the revenue board will check the sales trend of the manufacturers and importers to retailers to prevent tax evasion.

Further, the buyers who are making purchases above Rs100,000 would also be monitored for their declared income. To make the system of point of sale a success, the FBR announced prizes through a draw for those customers who make purchases through POS and verify their invoices with the FBR’s portal.

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