Islamabad: The Federal Board of Revenue (FBR) proposed three schemes to bring undocumented sectors into the tax net on Thursday, according to news sources. These schemes include a simplified tax regime for traders, a fixed tax regime for small-scale shop owners, and the issuance of business licenses. These schemes are being launched to bring small businesses into the tax net.
The FBR will present these schemes before the federal cabinet after gathering feedback from the relevant stakeholders.
Economic Affairs Minister Hammad Azhar said that the retail sector’s contribution to the national exchequer was only 0.25% despite its contribution of 20% in the national Gross Domestic Product (GDP). He mentioned that 80% to 90% of the retailers weren’t registered with the tax authorities.
The FBR notification read that these schemes were proposed after thorough research and discussions with the trade bodies. The draft is also reported to include solutions to some tax compliance issues faced by the traders.
The simplified tax regime will apply to retailers and wholesalers, and those who opt to file their taxes under this non-jurisdictional regime will not require book-keeping, or be subject to any audit. The retailers who may qualify for this scheme include those with a turnover of less than PKR 50 million, self-invested equity of less than PKR 50 million, or fixed assets amounting to less than PKR 100 million and with employees less than or equal to five. An annual 10% increase in the threshold will account for the business progress.
The second scheme called ‘Special Procedures for Payment of Taxes by Small Shopkeepers’ defines small shopkeepers as individuals whose shops span over less than 300 square feet, not including jewellers, warehouses, realtors, builders, developers, doctors, lawyers, wholesalers, or chartered accountants.
Other exclusions are as follows:
- Retailers who operate as a unit of a national or international store chain.
- Retailers who operate in air-conditioned malls, plazas, or centres.
- Retailers who have credit/ debit card machines
- Retailers with a cumulative bill of over PKR 300,000 over the last 12 months
- Any individual covered under Section 99C of the Income Tax Ordinance, 2001.
The tax rate under the scheme will be 2% of the turnover or as the amount of the fixed rate notified by FBR. The token tax rates for small shopkeepers for the tax year 2019 are detailed as follows:
- Shops that don’t exceed 150 square feet, and are located in areas designated as ‘Category A’ will be liable to pay a token tax of PKR 35,000.
- Shops spanning over 300 square feet and located in Category B areas will pay PKR 40,000.
- For shops located in any other place than Category A, with business premises not exceeding 150 square feet, PKR 20,000 is the token amount.
- The token rate for shops in any other place than Category A and premises that exceed 150 square feet, but not over 300 square feet, is PKR 25,000.
This token amount will be paid twice in a year, and the shopkeepers will be subjected to audit. A sticker displayed in shops will authenticate paid taxes.
Thirdly, the FBR also released an automated registration system and simple application form for any person engaged in any form of business, vocation or profession to apply for the issuance of a license. The registration is to be made mandatory for all business and enforced through the district administration. The FBR proposal demands these licenses to be put on display on business premises.