Will the FBR be able to tame the retail sector?

Retailers have retaliated in creative ways to continue avoiding tax. Does the FBR have any way out of it?

In November 2021, the Federal Board of Revenue issued a list of 608 big retailers which it had categorised as ‘Tier-1.’ These 608 retailers would have to integrate with the board’s Point of Sale (POS) system. Failing to do so would result in these retailers being denied 60 percent input tax credit. 

At first glance the penalty may seem harsh. A closer look at the numbers reveals that the measures were taken by the FBR to curb the culture of rampant tax evasion within the retail industry. According to a recent report by Planet Retail, the retail market in Pakistan has crossed $152 billion, which makes the sector the third largest contributor to the country’s GDP and its second large employer. 

According to the FBR, the retail market accounts for a whopping 18% of the GDP. Meanwhile it’s contribution to the national exchequer is a meagre 1%. There has long been an understanding that the only way to bring these retailers within the tax net was to digitise transactions and keep an eye on buying and selling at these retailers. The latest idea was that under the FBR’s new POS system, details of each transaction would go directly to the board and they would be able to calculate and charge tax accordingly. 

However, the retailers in question have not taken these directive meekly, and have responded with a slew of tactics meant to either stall, sabotage, or spoil the FBR’s efforts to bring the untamed retail market within the tax net. At the same time, retailers have also brought up concerns regarding the FBR’s new system, saying that the details they require exposes a lot of sensitive business information and the FBR has not had the best relationship with data breaches. 

Even though the FBR has been able to net a significant amount of retailer’s into the new POS system,  most retailers have either cited technical difficulties or have simply continued to operate mostly on cash to try and go under the radar on transactions. The question is, will the FBR manage to wrangle the market or will it eventually submit to their resistance? 

The POS system 

Article continues after this advertisement

Most of the retailers that fall within the Tier-1 had the option to pay through POS machines well before the FBR introduced the new system. The concept of a Tier-1 retailer was introduced through the finance act 2017. Tier-1 retailers would include large chain stores, any stores in malls, most restaurants etc. A good way of looking at it is through grocery stores. Tehzeeb in Islamabad, Imtiaz in Karachi, and Jalal Sons in Lahore all fall under the category of Tier-1 retailers. 

The implementation of this tiered system only really kicked off at the tailend of 2021. It was around this time that the finance ministry set a target of wanting to collect Rs 50 billion in additional taxes from these retailers by launching a drive to get them to install Point of Sale machines that will monitor their sales and report every transaction in real time to the FBR. 

How would this tax collection work? The FBR would launch a massive drive to integrate all of the Tier-1 retailers and have a total of 500,000 POS machines integrated within three years. The new system conceived by the tax department would help monitor every integrated sales tax transaction.

 

Note: Access to the full article is limited to paid subscribers only. If you are already a paid subscriber, please here. Otherwise, you can choose to purchase a subscription package below for as low as Rs 275/month:

Choose Your Subscription Plan

Note: Access to the full article is limited to paid subscribers only. If you are already a paid subscriber, please Otherwise, you can choose to purchase a subscription package below for as low as Rs 275/month:

 

Ahtasam Ahmad
The author works as a Sector Analyst at Profit and can be reached at [email protected]

14 COMMENTS

  1. You mentioned the following in your article “measures were taken by the FBR to curb the culture of rampant tax avoidance within the retail industry.”

    I would urge you to look at the definition of avoidance and evasion. Avoidance is legal and evasion is illegal. The retailers of Pakistan are engaged in tax evasion. Not only are they not paying taxes honestly on their profits, they are collecting GST on behalf of the government and keeping it. This is illegal in every part of the world but some people think it’s perfectly acceptable. These retailers should be threatened with closure if they don’t comply. They should in an ideal world pay the stolen taxes from previous years.

  2. Why should anyone pay any tax. The hard earned private tax money collected by FBR is used to line the pockets of elites, politicians, establishment, corruption, graft and waste to an extreme level.

    Leave the funds in the pockets of private citizens who have earned them.

  3. Do away with Rs 5,000 and 1,000 denomination notes. Let people carry tons of paper currency to pay in cash. It will be multiple measures in domain of education, facilitation and enforcement that tax net can be extended

    • Really that’s my question. This seems to me a very simple and elegant solution for corruption and tax evasion. But no government is applying it. Why?

  4. I want to draw your attention on an issue. That Teir-1 retailers’ catagory defined by FBR is a big question mark. They considered large retail stores, fine. But why ordinary retail shop qual to or above 1000 sq. Ft size is equivalent to a large retail chain store like Imtiaz and tehzeeb?

    An ordinary retailer cannot arrange sales tax invoices from the suppliers in the open market. Infact, there are large wholesalers and retailers having smaller shops in the rushy markets making millions of profit every day supplying to retailers. And retail showroom are just selling on a limited basis. 1000 SQ ft size option is not a thing to be fit in this catagory. Some of the retailers are not even able to manage their expenses. But FBR thinks they are Teir-1.

  5. Retailers expressing their difficulties in adopting new system have all the wisdom n know all tricks of doing business.

    We are the problem!

  6. We salaried individuals are taxed at source. We are not nawabs. More than one months salary in year is taken by govt on the name of tax. Which other industry give one months profit/income as tax to government?

  7. Even though the FBR has been able to net a significant amount of retailer’s into the new POS system, most retailers have either cited technical difficulties or have simply continued to operate mostly on cash to try and go under the radar on transactions. The question is, will the FBR manage to wrangle the market or will it eventually submit to their resistance?

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Popular Posts