FBR softens sales tax regime for retailers

KARACHI: The Federal Board of Revenue (FBR) has softened the enforcement of retailers-related sales tax regime and contended upon whatever collected through power distribution companies on commercial connections, sources at the local tax department said on Wednesday.
An official at the Regional Tax Office (RTO) Karachi, on the condition of anonymity, said K-Electric was collecting the sales tax from retailers and depositing on a monthly basis.
“On an average the power company is depositing Rs25 to Rs35 million and so far it has deposited around Rs200 million to the national exchequer,” the official of the Regional tax Office said.
The official; however, said no further efforts have been seen from the field formation to detect new cases and bring them in the tax net.
In the last budget, the federal government had announced sales tax on retailers and the revenue authority to comply the decision issued SRO 608(I)/2014 dated July 2, 2014.
Through SRO, the federal government revamped the entire system of sales tax for retailers.
Under the new regime, different categories were introduced for the registration of retailers, which included a retailer operating as a unit of a national or international chain of stores; a retailer operating in an air-conditioned shopping mall, plaza or centre, excluding kiosks; a retailer who has a credit or debit card machine; a retailer whose cumulative electricity bill during the immediately preceding 12 consecutive months exceeds Rs600,000: and a wholesaler-cum-retailer, engaged in bulk import and supply of consumer goods on wholesale basis to the retailers, as well as on retail basis to the general body of the consumers.
These retailers under the law classified under category I and subject to sales tax at the rate of 17 percent with having provision of input adjustment. However, retailers making supplies of finished goods of 5 export-oriented sectors, are liable to pay sales tax at reduced rate as specified in SRO 1125(I)/2011 dated December 31, 2011.
In the category II, the retailers would fall in others segment. The chargeability of sales tax on retailers of this category has been fixed through the payment of electricity bills, under which the monthly electricity bill of up to Rs20,000, the sales tax rate will be five percent and in case of exceeding the limit, the rate will be 7.5 percent.
Retailers of category II; however, allowed relaxation in filing monthly returns and were granted exemption from the audit.
The RTO official said in several cases the retailers had obtained registration, but not filing their monthly statement and the FBR headquarters is also not asking about their non-compliance.
The issuance of SRO 608 was an ambitious effort of the FBR to bring maximum number of taxpayers in the tax net. However, soon after the introduction of the notification, the business community strongly reacted.
When contacted, Iftikhar Vohra, president of the Karachi Chamber of Commerce and Industry (KCCI), said the members were not complaining about the enforcement of the sales tax on retailers.
“It appears the FBR officials and retailers have reached a settlement,” he said.
The KCCI president said there were high rate of irregularities among lower officials of the FBR. “On the other side, officials at the policymaking levels are far better, but do not have the capacity to enforce the laws,” he added.
The measure was introduced to broaden the tax base, but the previous cases that were identified are still not resolved, he said.
“The FBR has identified 240,000 potential taxpayers and initiated proceedings in only 117 cases,” he added.
An official at the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) said the law introduced in the Federal Budget 2014/15 was not enforced due to the lack of government will despite protests lodged by the business community.
The FPCCI in its Shadow Budget 2014/15 estimated Rs54 billion collection for the FBR against the aggregate collection of Rs1 billion from retailers. It suggested: “There are 1,500,000 retail shops in the country. Different slabs for collection should be created to collect tax from the shops according to their size and location.
“The collection of tax from retailers will be based on progressive system. The minimum tax suggested for retail shops is Rs1,000 per month; however, the rate for supermarkets and chain stores will be certainly different.”