ISLAMABAD: Blowing away the third opportunity in two decades to rope traders into the tax net, the federal government on Wednesday succumbed to their pressure and agreed to give them sweeping concessions including relaxation in registration conditions, reduction of income tax rates by 66% and postponement of the CNIC condition till January 31 next year.
Adviser to the Prime Minister on Finance Dr Abdul Hafeez Shaikh announced that the government had reached an 11-point agreement with the traders. The adviser made the announcement in the presence of Pakistan Tehreek-e-Insaf (PTI) leader Jahangir Khan Tareen and the traders’ central leadership.
The traders’ two-day strike came to an immediate end after the announcement of the concessions.
“The government has not withdrawn the CNIC condition for making purchases of over Rs50,000 but deferred its implementation till January 31, 2020,” Shaikh said at a news conference.
However, two major concessions — sales tax registration exemption for traders paying up to Rs1.2 million annually in electricity bills and owning a 1,000 square feet shop — will render the CNIC condition largely ineffective.
Under the existing law, any shopkeeper whose annual electricity bill is above Rs600,000 will be treated as a class-I trader and will be subjected to 17% sales tax. Now the limit has been enhanced to Rs1.2 million that will exclude many traders from the scope of the net.
The clause 9 of the agreement reads: “Any shop having a 1,000 square feet area will be exempted from sales tax registration and the decision about its exemption will be taken in consultation with a committee of traders”. However, Federal Board of Revenue (FBR) officials said only a few shops would be granted the exemption.
Shaikh also announced cutting the minimum income tax rate from 1.5% to only 0.5% for traders who had an annual turnover of up to Rs100 million.
An FBR official said in the last fiscal year, traders paid Rs35 billion in income tax. “The government will make sure through legally binding conditions that they [traders] do not pay less than Rs35 billion,” he added.
“The new rate will be for those traders who are coming into the tax net for the first time.”
The government will have to introduce amendments to the Income Tax Ordinance to give effect to the changes agreed with the traders.
Shaikh said the traders, who had an annual turnover of Rs100 million, would also not act as FBR’s withholding agents.
“There are 3.5 million to 4 million traders and only 392,000 are registered for tax purposes,” he added.
Government officials believe that it is a win-win deal. They said the government had rejected the traders’ demands to exclude them from audit and allow question-free capital investment.
The government also did not agree to a fixed income tax regime and instead opted for the lesser evil — the minimum income tax regime.
The concessions that were given to the traders are largely in line with the government’s medium-term objectives of bringing an end to the fixed tax regime and reducing the numbers of withholding tax agents, according to the government functionaries.
“The agreement has been reached so that it becomes convenient for the traders to come into the tax net and at the same time we are also trying to achieve the objective of documenting the economy,” Shaikh told the media.
The finance adviser described the agreement as “good news for the economy” that would increase tax revenue for growth and public development, support the traders and generate economic activity.
Khawaja Shafiq, the chairman of the All Pakistan Anjuman-e-Tajran, said the traders had reached the agreement with the government because of the “positive role” played by Tareen.
To a question about the political objectives achieved by compromising over economic goals, Shaikh said the government had tried to achieve “national objectives”.
“It is Prime Minister Imran Khan’s goal to facilitate businessmen,” he added.
To a question about how many traders of the total four million will be excluded from the sales tax net because of these concessions, FBR Chairman Shabbar Zaidi said there might be a 10% reduction in the collection of sales tax.
However, he did not disclose the number of beneficiaries.
He said the traders who fell in the category of those paying Rs600,000 in electricity bills annually had paid Rs3.8 billion in sales tax last year.
“The exemption limit has been doubled to Rs1.2 million because of inflationary changes,” he added.
It was also agreed that for the sectors that operate on low profit rates, the minimum turnover tax rates would be decided in consultation with a committee of traders. Both sides agreed that the government would address the issues of the jewellers association and the licence renewal fees of middlemen.
The decision about the sales tax registration of wholesale traders would be taken in consultation with a committee of traders, according to the agreement.
It has surfaced that the federal government was forced to enter into the agreement after receiving an intelligence report from the Punjab home department warning that traders’ shutdown would benefit the Jamiat Ulema-e-Islam-Fazl’s (JUI-F) ‘Azadi march’.
According to a copy of the Punjab home department’s intelligence centre report available with The Express Tribune, a survey of 527 markets in Punjab was carried out. It was found that 116 markets observed a complete shutdown. There was a partial shutdown in 382 markets and only 29 markets did not observe the strike.
The report warned that as most traders on strike were affiliated with the Pakistan Muslim League-Nawaz (PML-N), there was the possibility of the shutdown being used to make the JUI-F’s ‘Azadi march’ successful.
It recommended holding meaningful talks with the traders to address their concerns.
According to the survey of 61 markets conducted in Lahore, 30 markets were completely and 31 were partially closed.