FBR estimates Rs49bln revenue loss on sales tax concessions

KARACHI: The Federal Board of Revenue (FBR) has estimated Rs49 billion as the loss due to sales tax concessions granted to retailers who share transactions with the tax authority on real-time basis, it was learnt on Friday. An official document showed that the FBR estimated Rs49 billion as revenue loss on reduced rate of sales tax allowed to retail outlets, which have been integrated with the FBR’s computerised system.

The concession has been granted for the tax year 2020 and mainly retailers of textile and leather goods had availed the benefit.

Retailers who comply with the point-of-sale (POS) integration law are entitled to sales tax of 12 percent as against the normal 17 percent. A senior official at the in Regional Tax Office (RTO) Karachi told The News the revenue loss against the reduced rate is, however, much lower than the adverse revenue impact under zero rating of sales tax.

“The FBR is aiming to document the economy and identify potential taxpayers,” said the official. “As number of tier-1 retailers who deploy POS increases, the collection of sales tax will increase. The revenue under direct tax will also have a positive impact in the coming years.

The official said the FBR extended the deadline for integration of POS up to November 30 from August 31.

The official said that the extension of time might not avail by individuals who have received recovery notices. “Now they have the option to file an appeal against the notices,” the official said.

Tax authorities issued thousands of notices to big retailers who failed to comply with a legal requirement to digitally integrate their trade transactions with real-time point of sale system. Non-compliant taxpayers could be fined up to one million rupees.

Sources said a new section (43 A) was inducted into the sales tax law, through Finance Act 2017. Under the law, big retailers are required to integrate their outlets with the FBR’s system.

The requirement is for retailers, who operate as a unit of a national or international chain of stores, in an air-conditioned shopping mall, plaza or centre, excluding kiosks, whose cumulative electricity bill during the immediately preceding 12 consecutive months exceeds Rs1.2 million, are engaged in bulk import and supply of consumer goods on wholesale basis to the retailers, and on retail basis to the general body of the consumers and whose shop measures 1,000 square feet in area or more. Normal sales tax is 17 percent. However, the rate of tax was reduced to 14 percent for retailers engaged in sale of textile and leather goods to ensure documentation of the economy at the retail stage. The sources said sales tax was further reduced to 12 percent, if supplied goods are finished fabric and locally manufactured finished articles of textile and textile made-ups, and leather and artificial leather subject to condition that they maintained 4 percent value addition during the last six months.

The RTO Karachi initiated penal action against several Tier-1 retailers, who failed to comply with the law.