FBR moves to bring small traders into tax net

Unveils drafts of simplified income tax returns to address concerns

ISLAMABAD: The Federal Board of Revenue (FBR) on Thursday unveiled drafts of simplified income tax schemes to address traders and small shopkeepers’ concerns that had compelled them to remain outside the tax net.

The FBR issued the rules for Income Tax Special Procedure for Traders, Income Tax Special Procedures for Small Shopkeepers and Obtaining and Issuance of Business Licences. These rules will be enforced after seeking the approval of the federal cabinet.

The rules have been issued two weeks ahead of the traders association’s three-day strike call against the FBR's new taxation measures.



These businesses and people have been excluded from the normal income tax regime. All those people and traders who are registered with the FBR but did not submit their annual income tax returns have also been declared eligible for the new scheme for traders. There are nearly 4.8 million registered income tax persons in Pakistan but only 2.2 million filed their annual income tax returns for tax year 2018.

The traders have been offered five key benefits. They will be exempted from audit, they would not be bound to submit income tax returns to a particular tax office, they will not act as withholding agents for the FBR and their income tax returns and wealth statements will be simplified.

However, the traders will pay normal income tax, unlike small shopkeepers who have been offered to pay only 2% of turnover or up to Rs40,000 fixed annual income tax.

The traders will not be bound to pay advance tax but if they like they can discharge their liability in four advance equal tranches.

The FBR said that the simplified scheme for the traders has been proposed to address complicated tax regime and equally complicated requirement of record keeping. The new proposed regime will also address the issue of complicated return form and wealth statement and reduce personal interaction and personalised jurisdiction that has high probability of abuse of discretion even leading to corruption and harassment, according to the proposed draft.



In the proposed scheme, all the four major concerns have been addressed, stated the FBR. The proposed scheme will come into force from this fiscal year.

Eligible traders

The retailers having turnover of less than Rs50 million, self-invested equity of less than Rs50 million, cost of fixed assets of less than Rs100 million and number of employees less than or equal to five are eligible to get benefit from the scheme.

The thresholds as prescribed shall be increased by 10% each year to account for economic progression in business. The traders' scheme would not be applicable for small shopkeepers.

All persons who are not already registered with the FBR will be registered under this scheme and shall submit the registration form through the FBR online system IRIS.

In case of loss for the year or tax liability less than 1.5% of turnover, the traders will pay a minimum tax of 1.5%.

The FBR said that in case it gets definite information regarding concealment of income or evasion of tax, it will proceed against such people under the normal income tax law. But an action cannot be taken against such people, until an FBR committee allows it.



Small shopkeepers

The FBR has defined "small shopkeeper as an individual who carries out business at a premises having covered area of less than 300 square feet but does not include a shopkeeper if he is engaged as a jeweller, wholesaler, warehouse owner, real estate agent, builder and developer, doctor, lawyer, chartered accountant or any other category specified by the FBR”.

A retailer operating as a unit of a national or international chain of stores, a retailer operating in an air-conditioned shopping mall, plaza or centre, a retailer who has a credit or debit card machine, any person whose cumulative electricity bill exceeds Rs300,000 in the immediately preceding 12 months; and any person covered under traders scheme will also not qualify for small shopkeepers scheme.

The small shopkeeper will pay only 2% of turnover as tax rate or fixed from Rs20,000 to Rs40,000 income tax, whichever is higher. The fixed tax rate will depend upon the size and location of the shop. These people will pay their taxes in two instalments, first before September of every year and second before December of every year.

The shopkeeper will become ineligible for the scheme, if he does not pay due tax or does not file the income tax return.

Business licence

The FBR also issues rules for applying for a business licence. Any person having a cell phone number, having access to the internet facility will have to apply for a business licence to do business in Pakistan.

Where the applicant is not having any cell phone number issued by any mobile phone company or not having access to internet facility, he shall provide the particulars to the service provider or the personnel in a kiosk established by a Regional Tax Office, for online filing of the form, and the service provider or the personnel in the kiosk for getting the business licence.

Every person who has been issued a business licence under these rules, shall display the said licence at every place of business.

The FBR also clarified that sales tax can only be recovered from the customer if the supplier is registered for sales tax purposes and reflects the Sales Tax Registration Number (STRN) on the invoice/receipt issued to the customer.

The FBR clarification has further advised the customers to ask for invoices/receipts having STRN on the invoices/receipts on purchase of goods and services. In other cases, the supplier is not entitled to recover sales tax from the customers. The FBR has cautioned customers to beware of the same.