FBR launches drive to net ‘big’ retailers

KARACHI: Federal Board of Revenue (FBR) has launched a drive to bring ‘big’ retailers into the sales tax net in continuation of its last year’s crackdown on distribution channels to catch tax evasion, officials said on Monday.

An official at Regional Tax Office (RTO) – III Karachi said the drive has been launched in the wake of mushroom growth of retail outlets across the city. 

“The tax office is gathering information about the goods supplied to retail outlets on the basis of invoices issued by distributors, manufacturers and wholesalers,” the official said on condition of anonymity. “We are also gathering similar information from importers of finished products.”

Government, in the budget for the fiscal year of 2017/18, amended Sales Tax Act 1990, redefining tier-1 or big retailers, in order to net them. Now, they are required to pay sales tax of 17 percent under the value-added mode.

Before the amendment, sales tax collected from retailers through electricity bills was considered as final discharge of sales tax liability.

The sales tax law defines tier-1 retailer as one who operates: a unit of a national or international chain of stores; in an air-conditioned shopping mall, plaza or centre, excluding kiosk; an outlet with a cumulative electricity bill of Rs600,000 for the past one year; and unit engaged in bulk import and supply of consumer goods on wholesale basis to retailers as well as on retail basis to consumers.

Under a statutory regulatory order (SRO 1125(I)/2011), retailers supplying finished goods to five export-oriented sectors are to pay sales tax at reduced or nil rates. Such retailers have also been given an option to pay 2 percent turnover tax, including on exempted supplies, without any input tax adjustment.

The tax official said the RTO would conduct periodical audits and physical stock taking of big retailers. RTO – III Karachi detected sales tax evasion by the retail outlets of international brands and recovered huge amount in those cases during the last fiscal year.

In some cases, the outlets had contested the tax office on legal ground that they were only service providers. Government, in the budget 2017/18, also altered the definition of liaison office and a unit working in Pakistan on behalf of an international entity would be treated as a permanent establishment of foreign company and will be liable to normal tax regime.

FBR’s tax collection grew 20 percent to Rs200 billion in July over the same month a year earlier. Government set the tax collection target at Rs4,013 billion for the current fiscal year of 2017/18. Last year, the tax collection amounted to Rs3,360-3,362 billion.