In Pakistan, large retailers to link outlets with FBR by Dec 1

They will not be entitled to reduced 14% sales tax if they fail to connect

ISLAMABAD: The Federal Board of Revenue (FBR) on Thursday notified December 1, 2019 as the deadline for all large retailers to link their retail outlets with its electronic system aimed at capturing their real income.

In case, the large-sized retailers fail to link their systems with the FBR, they would not be entitled to the reduced 14% sales tax, according to the FBR’s notification.

The FBR has also brought sales made through social media portals under the scope of sales tax rules and these sales will be subject to 17% sales tax. The FBR issued the notification to amend the Sales Tax Rules 2006 aimed at tightening the noose around big retailers and fertiliser, sugar and edible oil manufacturers and strengthening procedures to check the issuance of bogus refunds.

The measures, if implemented successfully, have the potential to capture real earnings of the retailers doing business at shopping malls in major cities and also of the certain class of manufacturers that have become monopolistic.

Fertiliser, sugar and cooking oil producers recently made huge profits by increasing prices of their products far higher than the tax imposed by the government of Prime Minister Imran Khan in the budget. The FBR notified the new rules that made it mandatory for tier-I retailers to integrate their retail outlets with the FBR’s electronic system.

Tier-I retailers comprise those that operate a unit of a national or international chain of stores; retailers operating in an air-conditioned shopping mall, plaza or centre, excluding kiosks; retailers whose cumulative electricity bill during the immediately preceding 12 consecutive months exceeds Rs600,000; and wholesalers-cum-retailers engaged in bulk import and supply of consumer goods on a wholesale basis to the retailers as well as on a retail basis to the general body of consumers.

In case the large-sized retailers failed to comply with the deadline of December 1, the FBR said these retailers would not be entitled to the reduced sales tax of 14% on the sale of finished fabric and locally manufactured finished articles of textile and textile-made-ups and leather and artificial leather. They will then be charged the standard 17% tax.

“We have only targeted those retailers who are doing business with store chains or in big malls,” said FBR Inland Revenue Member Dr Hamid Atiq Sarwar.

He said the FBR would no longer stick to the 1,000 square feet definition of big retailers as sales of some business, located in small-sized shops, were in millions of rupees.

The FBR has also amended rules to improve the monthly tax return filing by the manufacturers of urea, sugar and cooking oil. Now, the FBR has expanded the list of businesses which would have to provide monthly reports of manufacturing and supplies and included urea fertiliser, DAP fertiliser, other fertilisers, cane molasses, ethanol, vegetable ghee, cooking oil and edible oil, asking their manufacturers to disclose goods produced and sold in their monthly sales tax returns.

The FBR has made it mandatory for brick manufacturers to electronically file their quarterly sales tax returns.

In order to improve scrutiny of tax refunds, the FBR has sought claimant-wise bank advice duly signed by the signatory and co-signatory indicating the amount payable and declared bank account of the claimant would be sent to the State Bank of Pakistan.

The FBR has included cotton ginners in the sectors that can claim excess unadjusted input tax aimed at facilitating them.

It has also clarified that the refund claims prior to the June 2019 period would be cleared as per earlier procedures, suggesting that the people will have to wait for years if they get their genuine refunds.

It has notified the electronic refund system for five export-oriented sectors. However, the FBR has not made full refund payments to them and their roughly Rs80 billion in refunds were part of the Rs958 billion first-quarter tax collection. According to the revised rules, the registered sales tax persons dealing in business of restaurants, cafes, coffee shops, eateries, snack bars and hotels would install electronic device and software, as approved by the board, for online real-time transmission of sales information.

The FBR has not been able to mend ways with the small-sized retailers. These retailers are making illegal demands like not getting registered with the FBR.

Published in The Express Tribune, October 11^th, 2019.

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