Bringing shopkeepers into tax net

FBR may announce special scheme for retailers

By Mehtab Haider

ISLAMABAD: The government is contemplating different options to announce a special scheme for retailers for the imposition of reduced rate of General Sales Tax (GST) in the range of 5 to 7 percent to bring millions of shopkeepers into the tax net.

The budget makers for 2021-22 have proposed different options whereby the ongoing scheme of Point of Sale (POS) would be expanded to all the major cities. The government had placed the reduced GST rate of 12 percent for POS integrated branded shopkeepers. Now the government wants to move ahead to bring the retailers at large into the tax net.

The government had envisaged target to connect 10,000 branded shopkeepers with the POS system but now it would be increased in gradual manner up to 50,000 and then 100,000. For small retailers, the NADRA might be utilized for ensuring registration of small retailers/traders in the country. All schemes introduced by different regimes irrespective of political divide, including military led government or civilian governments in the past, had failed to lure the retailers into the tax net. The government had once linked them with electricity consumption and even imposed fixed tax on size of the shops but these schemes failed to yield any desired results.

One FBR official said that there were fears among the tax machinery that if the GST was more distorted with more reduced rates, it would destroy the concept of value added mechanism. The IMF might oppose any such move, citing the same arguments.

Secondly, there is an issue of weak writ of state whereby the FBR will have to make a lot of efforts to enforce its law. There is one success story as the FBR implemented the POS software at branded shops and so far integrated brand chains in different major cities and hotels as well as restaurants in the federal capital.

The FBR is also considering to introduce prize schemes for customers who will get receipts from POS generated mechanism as it would help the FBR to document the economy. The rate of GST would be less than standard rate of 17 percent for small retailers as the FBR considers that the higher rate at initial stage might create more difficulties to implement at desired pace.

For retailers, the FBR is considering to come up with a fixed rate of tax in the coming budget where all shopkeepers will be asked to come into the tax system by paying a fixed amount of tax. There is another proposal to incentivize those who would make payments of any bill at retail shops through credit cards.

When contacted, FBR’s former Member Shahid Hussain Asad said that a fixed rate of GST for retailers should be introduced in the coming budget. With use of technology, he said that the scheme for retailers could be made successful.