Lahore: The Chainstore Association of Pakistan (CAP), the official trade body for ‘Tier 1 Retail Sector” representing the organized retail sector of Pakistan, has expressed serious concerns regarding the possible failure of the POS integration scheme as per policy changes proposed in the Finance Bill 2021.
CAP Chairman, Tariq Mehboob, said that the Finance Bill reflects a positive economic direction but some key hurdles remain.
“Unfortunately, integrated retailers have still not been given an even-playing field and continue to stagnate due to lop-sided implementation of POS integration since 2018. The only game-changing and truly effective solution to achieve the aggressive target of 60,000 integrated POS is a Single-digit GST rate for all integrated Tier-1 Retailers on all goods at all stages, i.e. import, manufacturing, distribution, wholesale and retail”, he said.
This important step can easily yield the ambitious revenue targets from the retail sector as targeted by the Finance Minister Shaukat Tarin. Such an approach will be instrumental towards voluntary documentation of the sector based on the last two years’ experience during which only 11,000 POS of around 1,000 retailers were integrated, Mehboob added.
An MoU was signed between CAP and the FBR on 28th October 2020 to rectify tax distortions related to Tier-1 Retailers which would ensure success of the POS integration scheme across the retail sector of Pakistan. However, key points remain un-implemented especially the reduction of the rate of withholding tax in line with minimum tax rates for all integrated retailers, as implemented for the FMCG sector only.
On a positive note, the implementation of 0.25% minimum tax and withholding tax on the entire value chain of FMCG sector is a good step to partially assist with documentation of Super-stores, a large sub-sector of retail trade.
“The same approach should be applied on all goods sold by integrated retailers and their entire value chain. The current mismatch results in passing on of withholding taxes to the buying party and transactions remain undocumented to avoid the additional cost burden. This rationalization is much needed for integrated businesses which report their sales transparently but struggle to persuade suppliers to document all transactions without adding to their cost of doing business”.
“To effectively improve taxpayer sentiment, integrated Tier-1 Retailers should be treated specially without the fear of frivolous notices and repeated audits to create a positive example for the majority of Tier-1 retailers that are still to be integrated. We have already recommended to the FBR that separate zones in tax offices with dedicated personnel should be made to facilitate the integrated retailers so that harassment is curtailed to the maximum,” he added.
Reduction of minimum tax from 1.50% to 1.25% is a positive step but is unlikely to yield positive results for documentation of the retail sector at-large. Similarly, the proposed allowance of 100% input adjustment of sales tax for publicly listed companies should also be extended to integrated retailers as their sales are being reported in real-time to the tax authorities.”
“In addition, CAP represents key stakeholders in the e-Commerce sector and the indirect liability of sales tax on behalf of third-party sellers imposed upon eCommerce marketplaces, essentially service providers, is regressive. Ad-hoc tax regulations without consultation of business representatives will only hurt the growth of online businesses and the fledgling e-Commerce sector. There are better options to document the e-Commerce value chain without stifling the digital economy. Meanwhile, the removal of Federal Excise Duty on MDR applicable to digital payments is a good move and will encourage use of digital money” stated the CAP Chairman.