The government plans to amend tax laws through a presidential ordinance, making it mandatory for importers and manufacturers to sell only to registered buyers under the ‘Know Your Customer’ (KYC) system.
The move is intended to push more traders into the formal tax regime by tying transactions to tax compliance.
According to reports, the proposed amendments have been drafted and sent to the Prime Minister’s Office for approval. Following cabinet clearance, the ordinance will be sent to the President for promulgation.
The KYC system will enable the Federal Board of Revenue (FBR) to trace sales records and identify non-compliant buyers who are not part of the tax roll. This effort is closely tied to the FBR’s Tajir Dost Scheme (TDS), which offers incentives for traders to register as regular taxpayers.
Focusing on larger retailers rather than small shopkeepers, the initiative aims to overcome resistance from traders’ associations that have opposed enforcement measures in the past.
By linking purchases to tax return filings, the government hopes to eliminate the category of non-filers and ensure compliance under the standard tax regime.
The FBR’s data shows a marked improvement in tax compliance in the retail sector during the first four months of FY24. Between July and October, Rs25.961 billion was collected from retailers, an 84.3% increase compared to Rs14.087 billion in the same period last year.
The number of retailers filing income tax returns also saw a sharp rise, with over 600,000 filings during the first four months of FY24, compared to around 200,000 in the same period last year—a nearly 200% increase. This growth is largely attributed to stricter measures, including the anticipated KYC compliance rules.
The TDS, introduced in April, aims to maximize trader participation with tailored incentives. However, participation remains limited, with shopkeepers in only 42 cities covered under the scheme. Many traders have expressed dissatisfaction with some clauses, hindering full compliance.
