Taxmen set sights on fashion designers, beauty parlours

ISLAMABAD: The Federal Board of Revenue (FBR) is preparing a comprehensive plan for the next financial year to bring big retailers, restaurants, caterers, beauty parlours, fashion designers and other professionals into the tax net.

Officials in the FBR said the plan is being crafted in light of analytical studies done on different sectors. They said although most of the sectors cited above are paying some tax but also evading much more, as one can imagine the prices charged for food, bridal dresses and wedding arrangements.

The government is making amendments to the VAT and Income Tax Act so as to use credit card sales of a concern as a measure of the concern’s actual sales, the officials added. In our cash economy credit card sales are apparently the only documentary proof of sales of any outlet at present. At times these concerns do not cover such sales in their tax returns submitted to the revenue authorities.

Moreover, the users of credit cards should be given some major incentives – at least for the first couple of years – so that they insist with the service providers for payment through credit cards. This self-enforcement step alone will lead to considerable documentation along with revenue generation, the sources said.

The FBR is also working to introduce one unique tax number on the pattern of Social Security number in the US. “Currently you have NTN number for income tax and a different registration number for sales tax. And it is difficult, if not impossible, to link the two with each other or with the customs data,” said an FBR official.

“The significance of this unique number would be that this number shall give a holistic view of the activities of any person including import, export, local sales and purchases, taxes paid etc,” he added. “The option of using the NIC number issued by Nadra as the unique identifier must be looked into,” the official said. Suhail Ahmed, chairman of the Federal Board of Revenue (FBR), said that value-added tax will be imposed on fashion designers, beauty parlours, caterers, retailers and other service providers with an annual turnover of Rs7.5 million.

However, since VAT is a consumer levy the service providers will only need to collect the tax from customers and deposit it with the FBR. He told The Express Tribune over the phone that by bringing such services under the tax net, the state coffers will receive additional billions in revenues. He said the FBR has prepared estimates on how much a certain sector and service could yield additional taxes. However, final statistics will come to the fore once the tax takes effect. He said people should realise that VAT is a consumer tax, to be paid by consumers.

Bringing the service providers under the tax net does not follow that they are to pay the tax themselves, he added. But a leading tax consultant Faraz Fazal struck a dissenting note. On being approached, he said services will get costlier by 15 per cent with the imposition of 15 per cent VAT on them. He said doctors, lawyers, teachers and other service providers having an annual turnover of Rs7.5 million will be subject to VAT and this will not only push inflation up but also spawn disputes. He said it was true that VAT enforcement will help document the economy but it was equally a fact that literacy rate among our shopkeepers is pretty low.

It is common observation that when a child in the family does not show interest in education, he is made to sit in a shop and as time passes he starts running the shop himself. For such people bookkeeping and maintaining record is a difficult job. He said the FBR plans to get electronic registers installed at shops, which again will cause disputes. Instead of slapping VAT in haste, awareness should be created among the stakeholders and it be enforced after thorough consultation with them.