No Escape: Govt to Bring Small, Medium Retailers into Tax Net by Introducing Fixed Tax Rate

The government is mulling over options to bring millions of small and medium retailers into tax net by introducing reduced fixed sales tax rate as well as decreasing minimum turnover tax from 1.5 percent to 0.5 percent in next budget 2020-21, it is learnt.

One tax expert suggested to the government that the retailers should be incentivised in such a way that a portion of collected taxes from an area should be utilised on its development.

The FBR is considering different proposals to bring retailers into tax net because all schemes introduced in the past failed to lure them. “We are considering to give them incentive but will ensure effective enforcement against those who will not come into tax net,” top official sources confirmed to The News here on Saturday.

“All proposals are on the table at the moment,” said one top official of government who added that important meeting in this regard was scheduled to be held in Q Block (Finance Ministry) at Pak Secretariat to finalise major feature of taxation side. The FBR high-ups are preparing different proposals to integrate data bank so that the available information can be diverted into taxability.

The official said that the FBR had already placed GST rate at 14 percent for tier-1 retailers of textile/garments sector who would connect with Point of Sale (POS) software. If the sale is determined on actual basis, the rate can be further reduced because the retailers do not prefer to show their actual sale, said the FBR official.

It is under consideration that all those retailers of tier-1, who would connect with POS, should be further incentivised and the rate of tax should be reduced to 12 percent. There is demand of tier-1 retailers to bring down the GST rate into single digit; however, the government might consider bringing it around 10 to 12 percent.

For small retailers, the government had failed to implement any scheme. There is again under consideration to introduce special incentive based scheme where there will be minimum tax to lure small retailers to bring into tax net.

The retailers and business community is trying to convince the government for abolishing of CNICs provisions on purchases of Rs50,000 but the FBR official said that it could not be abolished but the limit might be increased in upcoming budget up to purchases of Rs100,000.

When contacted, renowned economist Dr Ayesha Ghous Pasha, who is MNA from PML-N, on Saturday, said that there was need to bring much desired reforms into FBR as its capacity should be built to utilise the data of withholding taxes to bring potential people into tax net.

She said that the withholding taxes were introduced with the aim to broaden the tax base but the FBR started relying upon easy way of collecting taxes as they collected WHT through withholding agents. She said that the FBR should be given realistic target and reminded that the tax target was fixed at Rs5.5 trillion, which everyone knew from day one that it would be non-starter and could not be achieved. So next year target should be fixed on realistic grounds, she added.

The FBR’s former member Shahid Hussain Asad when contacted said on Saturday that the rate of minimum tax at 1.5 percent of turnover is too much. Instead of giving more tax, it discourages taxpayers to declare their true sales.

It is proposed that the rate of minimum tax should be reduced to 0.5 percent.

However, to discourage those who declare loss habitually, it is suggested that if someone declares loss (except loss wholly due to depreciation) for consecutively third year or during last 10 years loss (except loss wholly due to depreciation) was declared in more than five years in aggregate, the rate of minimum tax should be 5 percent of their turnover.

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