Retailers’ turnover mantra

LAHORE: There are some simple measures that could facilitate the Federal Board of Revenue (FBR) to nab tax evaders without taking harsh measures.

The traders used their nuisance value to force the government to collect 1-1.5 percent annual turnover tax as their final tax liability. Moreover, the tax collectors must accept whatever turnover they declare.

Raids on markets are forbidden due to pressure exerted by the traders. Still the majority of the traders avoid even this nominal tax.

The FBR is not allowed to raid the trade premises. There is no way to find out who is paying this nominal tax and who is not.

The state must make it mandatory for all business premises small or large to prominently display their national tax number and the receipt of the tax return filled that year. Those that do not pay any taxes would be identified easily and then a case could be made in public to bring them under the tax net.

Compliance must be very strict and every citizen should be invited to file a complaint at more than two departments (to reduce chances of corruption) if the details are missing from any business premises.

Current turnover tax for the majority of retailers is 1.25 percent (large retailers now document their sales through point of sales systems connected with the FBR0. The turnover tax on small traders is unrealistic and the tax collection would be very high if they paid the tax on actual turnover. They hide the turnover because they are not documented.

There are approximately 2 million retail outlets in the country. Out of these retail outlets, nearly 800,000 outlets represent FMCG channels including 'kiryana' stores (mom and pop), 'pan' shops (kiosks selling betel leaves and cigarettes), department stores, medical-cum-general stores and the likes.

Annual turnover that most of these shops declare for tax purposes belies common sense. Retail taxes with minimum threshold at which tax is applicable are fixed with the consultation of the representatives of small traders.

The retail sale of every store in small neighbourhoods is not less that Rs20,000/day. If the retailer earns 10 percent on this sales, the gross monthly income would be hardly Rs60,000.

But on bulk and branded items, the margins are less than 5 percent. Bulk sales are of branded items like edible oil, shampoos, soft drinks, tea and tea whiteners; but if we assume that 50 percent sales come from these items the daily gross profit would be reduced to Rs45,000/month.

A person with daily sales volume of Rs20,000 must be maintaining a revolving stock of at least Rs400,000. If the expenses like power bill, shop rent are included, the net profit would go down to around Rs40,000/month.

Is it worth toiling from morning till evening and earning a paltry amount that does not cover barest minimum monthly expenses of a family? The annual turnover comes to Rs6 million with this turnover, if this segment is not exempt from turnover tax.

At the current rate of 1.25 percent, the turnover tax would be Rs75,000. This is a very high tax. But since the retailer is at liberty to declare the turnover without any documentation. The small neighbourhood retailers and majority of other retailers declare turnover below the threshold on which turnover tax is applicable.

There is no way to bring retailers into the tax net at least till all their purchases are backed by official receipt of the suppliers. Otherwise the tax from traders would trickle slowly to the level of agricultural tax.