Overhaul of tax system the only way to tap whole retail sector

by index360

LAHORE: Chainstore Association of Pakistan (CAP) suggested simplifying the Sales Tax regime especially for integrated small and medium-sized retailers alongside removing the classes of Tier-1 Retailers and Other-than-Tier 1 Retailers, while compulsorily registering all retailers except those exempted from Income Tax.

The CAP in their budget proposals to Federal Finance Minister Dr. Miftah Ismail stated that the organized retail sector believes in digitalization of the economy and, compared to the past years, a holistic and consistent approach to reforms is crucial. Only the concurrent implementation of all recommendations will ensure faster pace of documentation and revenue generation from the entire retail sector, according to the trade body.

At the time of last year’s Federal Budget, an additional Rs. 50 billion in sales tax collection was envisaged for the fiscal year by then Finance Minister Mr. Shaukat Tarin. However, so far only an estimated Rs. 3 billion in additional sales tax has been collected by FBR in 10 months.

Chairman CAP Tariq Mehboob stated the proposals have been formulated after lengthy consultations with leading accountancy firms and wide variety of sectoral stakeholders. Firstly, Sales tax registration should be compulsory for all retailers except where a retailer is exempt from income tax thereby only the smallest retailer will be exempt from sales tax registration. Thus, registration of all retailers should be consistent in both Sales Tax and Income Tax laws.

Further, to ensure an even playing field, the counter-productive categorization of retailers into ‘Tier-1 Retailer’ and ‘Other than Tier-1 Retailers’ classes should be abolished. This will ensure retailers of all sizes regardless of goods supplied integrate / report their full sales on real-time basis through overhaul of current FBR-POS system making it easy-to-use and removing technical issues.

The CAP has proposed introducing an option for only integrated/documented retailers to pay sales tax as a percentage of turnover regardless of the nature of goods supplied (being exempt, 3rd Schedule or otherwise), for specified time period of 3/5 years. The fixed sales tax rate must be determined to maintain a difference for integrated retailers that prefer to adjust output with input versus those that prefer only to pay sales tax on turnover and bear the input cost. Proposed rates of taxes to be finalized considering the business model of each sub-sector. Similarly, recordkeeping and filing requirements should be simplified and mandatory filing of statutory returns by retailers irrespective of the taxation regime they opt for.

Tariq has asked for current restriction for 95% input adjustment be removed for integrated retailers as is already allowed for listed companies, but with no cash refund. It is also proposed to abolish sales tax withholding for Integrated Retailers that are Companies as defined in the Sales Tax Act, 1990, as it adds complications for supplies to the corporate segment. He also asked for official notification of a general immunity to all retailers from sales tax and income tax assessment and audit proceedings of past tax periods for those who register and integrate with FBR within a given timeframe, unless there is definite information available to FBR from regarding tax evasion.

Further, relaxation should be provided for post-integration tax periods, except for computer balloting for audit selection and withholding tax monitoring proceedings. There should be a general immunity for integrated retailers from desk audit / amendment of assessment proceedings. Integrated retailers have been facing an increase in notices from field formations and this approach must be reversed to encourage broad-based integration with FBR-POS and remove the cloud of harassment which is widely prevalent.

The CAP mentioned that small and medium-sized retailers face many complications relating to FBR-POS inter-alia software limitations, lack of technical expertise / resources, connectivity, and system maintenance for which integration system must be revisited. Various technical issues add to the compliance risk such as the increasing challenges which are being faced by integrated retailers with the new National Sales Tax Return (NSTR) portal. City-specific centralized, dedicated zones be established within the respective tax offices for integrated retailers. Therefore, all issues of integrated retailers may be resolved through one window for technical and operational matters plus harassment-free environment can be ensured.

In addition, the CAP suggested removal of transaction limit for provision of CNIC by end-consumers of integrated retailers while bona-fide upward revisions of returns shall be allowed without any time limitation or approvals from the Commissioner or Board. Auto de-blocking of previous periods un-submitted returns subject to payment of non-filing penalty and an effective Complaint Portal for Integrated Tier-1 should also be established.

Requirement to withhold sales tax by online market-places, from unregistered suppliers using online platform, should also be removed. E-commerce platform owners should not be burdened by the trade of unregistered sellers and only data should be sought automatically. FBR should use its own sources to identify unregistered suppliers to widen tax base. The CAP sought speedy harmonization of Federal and Provincial Sales Tax Laws for all E-commerce Businesses.

On Income tax, the CAP asked lowering rate of turnover tax to 0.25 percent for every integrated retailer and suppliers to integrated retailers to facilitate voluntary compliance of non-integrated retailers as already done for FMCG sector. The income tax withholding rate by integrated retailers be reduced to 0.25 percent for all registered purchases and 1 percent in case of purchases from persons not appearing on active taxpayers’ list. Further, requirement of income tax withholding under section 236H of the Income Tax Ordinance, 2001 be withdrawn for integrated retailers.

In line with the industrial package announced by the government, inter-alia providing amnesty scheme to industrialists, a similar relaxation be allowed to the integrated retailers to enable them to easily incorporate the declared value of inventory, other assets, and capital, for tax purposes, in their balance sheet / wealth statement. Fully declared inventory, assets, etc. will result in improve revenue generation and facilitate voluntary compliance for POS integration.

Special reduction of Income Tax Rates should be introduced to encourage fully integrated retailers that are transparently reporting turnover, and resultant profits, as compared with the non-integrated business filling their return without being integrated or checked comprehensively. This reduction might be introduced through 20-50% as tax credit for 3/5 years. This will boost the confidence and viability of integrated and complaint taxpayers until the entire sector is registered and integrated, the CAP concluded.

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