Pakistan Cracks Down on Untaxed Businesses: New Scheme Targets Retailers

Pakistan's tax authority, the Federal Board of Revenue (FBR), has launched a new scheme aimed at bringing a significant portion of the retail sector under the tax net. This initiative comes as Pakistan seeks the approval of a crucial loan tranche from the International Monetary Fund (IMF).

Broadening the Tax Base:

While initially proposed for small traders and shopkeepers, the "Special Procedures for Small Traders and Shopkeepers" scheme has been expanded to encompass a wider range of businesses. This includes dealers, retailers, manufacturer-cum-retailers, importer-cum-retailers, and anyone involved in the supply chain of goods.

The scheme focuses on major trade hubs in Pakistan, including Karachi, Lahore, Islamabad, Rawalpindi, Quetta, and Peshawar. These cities will see compulsory registration for businesses operating from fixed locations like shops, warehouses, and offices.

Addressing Historical Challenges:

Previous attempts to integrate retailers into the formal tax system have faced resistance. The current government hopes to overcome this by implementing the scheme with the oversight of the Special Investment Facilitation Council (SIFC).

The Numbers Tell the Story:

The urgency for this scheme stems from the vast disparity in tax contributions between different sectors. During the first eight months of the fiscal year, retailers only paid Rs. 11.2 billion in income tax, while salaried individuals contributed a significantly higher Rs. 217 billion.

This scheme aims to rectify this imbalance by establishing a system for minimum advance tax payments. While the initial registration happens in April, the first tax payments will be due in July.

Registration and Incentives:

Traders and wholesalers have a one-month window to register themselves, after which the FBR will enforce registration through its National Business Registry. Registration and tax payments will be facilitated through a "Tajir Dost" mobile application and the FBR's online portal.

The scheme offers incentives for early compliance. Those who pay their entire annual tax upfront or file their 2023 tax return can enjoy a 25% tax reduction. Additionally, even businesses with income below the tax threshold will need to pay a minimum annual tax of Rs. 1,200.

Transparency and Fairness:

The FBR aims to ensure transparency by calculating taxes based on the annual rental value of the business premises. This value will be derived from the fair market value as determined by the FBR or the district officer.

Furthermore, the scheme addresses concerns about hidden income by targeting bank accounts not currently accessible to tax authorities.

A Step Towards a More Equitable System:

The implementation of this new scheme signifies a significant step towards formalizing the retail sector in Pakistan. By bringing more businesses under the tax umbrella, the government aims to create a more equitable tax system and generate additional revenue.

This article was published at FBR Cracks Down on Untaxed Traders with New Registration Scheme