FBR’s fixed tax regime to increase traders’ contribution in revenue

LAHORE: The fixed tax regime proposed by the Federal Board of Revenue (FBR) would increase traders contribution in income tax at least 15 times from the current contribution of amere Rs6 billion, even though traders account for 20 percent of the GDP. It is yet to be seen as to howthe traders react to the FBR proposal that has freed them from all type of scrutiny by asking themto pay a fixed tax without any documentation.

The rates proposed by the revenue authority are still very low keeping in view the weight of retail activities in GDP. At best, the government might collect around Rs100 billion fromsmall traders. However, itwould be a big jump frommeagre tax contribution of Rs6 billion.

Various media reports and claims by leaders of traders estimate that there are two to 2.2million retail outlets in the country. These shops are spread in every corner of Pakistan; some in posh localities and some in less affluent areas.

Each shopkeeper, whether small or large, carves out his livelihood fromthese retail outlets. They either own the premises or rent these shops at reasonably high price depending on the location. Most of the shopkeepers in cities as well as small towns live a very comfortable life from their retail earnings. The monthly expenses of shop owners in big cities are much higher than the living standards of high salaried taxpayers. Still they have somehowkept themselves out of the tax net. They come upwithmany excuses ranging fromlow literacy to inability tomaintain ledgers and the corrupt practices of tax collection machinery.

The new FBR fixed tax regime has addressed all these issues. If they pay their assigned tax on time, no tax official would visit their premises or harass them. The ball now is in their court. Since they have not been paying any taxes at all; they would protest that the taxes fixed are very high. These taxes look high to thosewho pay no taxes at all. Under the previous fixed tax regime, the traders with turnover of less than Rs5million were allowed to pay a fixed annual turnover tax of 0.5-1.5 percent (rates kept changing). The FBR was bound to accept whatever turnover they declared. They were not required to provide documentary proof of annual turnover. Majority of traders filed statement declaring their turnover very low.Many of themdid not bother to pay any turnover tax at all.

The result was very low tax compliance. This time around, the FBR has come up with a more transparent scheme. It has divided the shops or trading premises on the bases of the square feet area of the shop. Moreover, tax for shops in better localities is based on the value of the property, and shops in each area have been divided into categories A and others. The fixed tax would now be collected on the location and area of the shop on annual basis to be paid twice a year. The minimum tax for a shop measuring less than 150 square feet has been fixed at Rs20,000 for year 2018-19 and Rs25,000 for year 2019-20. The tax rate increaseswith area and location and goes up to Rs50,000 per year. The traders who opt for fixed tax regime will have to deposit the tax in September and December every year.

Those who want to come under normal tax regime are welcomed to do so. They will have to compile their accounts through proper documentation. The minimum fixed tax of Rs20,000 comes to Rs1,667 per month that every shuttered shop owner should be able to pay with ease. The shopkeeper falling under Rs25,000 fixed tax would have to part with Rs2,083 per month. Shop falling in ‘A’ category would contribute Rs30,000-Rs35,000 per year or Rs2,083-Rs2,916 per month. The highest tax of Rs50,000 per year would translate into a monthly tax of Rs4,167 per month.

A larger shop could very well afford this tax. After all, these shops employ three to fourworkers and pay them much higher monthly salary. For all other categories, the tax charges increase based on power bill, turnover and larger area. Those already registered with the FBR would have to continue to file normal tax returns. The best part of this regime is that no shopkeeper would be able to escape fixed tax. Each shop that has paid the tax within due date would be issued a sticker that he is required to display at a prominent place. Those without sticker would be apprehended through traders’ association. This is a small first step towards bringing traders in the tax net. A lot has to be done like increasing the fixed tax to a level where the filer opts for normal tax regime.