Tax system automation

It appears that the Federal Board of Revenue (FBR) is planning to pursue 17,000 large businesses with outlets in shopping malls, retail chains and stores to improve tax documentation. Reports suggest that December will see tax authorities working to ensure that automated point of sale (POS) systems are in use at these outlets. Only around 3,500 outlets are currently registered with the system, which reports sales in real-time so that the FBR can ensure that taxes collected from consumers are actually deposited with the government. The Chainstore Association of Pakistan — which says all of its members are registered — had previously noted that less than 10% of retailers are registered, and they are able to undercut honest businesses with lower ‘tax-free’ prices.

FBR Chairman Shabbar Zaidi has already suggested that large retailers integrate with the system at the earliest. Zaidi is also selling the idea by emphasising how the system would reduce the need for direct interaction with taxmen thanks to automation. FBR officials have claimed that POS systems would document the sales of big retailers who are currently evading billions of rupees in taxes. The FBR expects to raise Rs20 billion from this 17,000-strong list of big retailers. Any outlets on the list that do not voluntarily register shall face penalties. These will reportedly be as harsh as the closing of shops by the time the FY2020-21 budget preparation rolls around.

Incidentally, the FBR hopes to have at least 20,000 businesses registered with the POS system by next June. Among the more interesting things trickling out about the new policy is the admission that some retailers are not just evading taxes by under-invoicing and other means, but are also defrauding their customers by making them pay taxes and then pocketing the amount. On the flip side, in order to encourage customers to get electronic receipts — which make it harder to evade taxes — the FBR is expected to come up with balloting-based sales tax refund schemes. Given that the FBR has already committed to spending over Rs12 billion on the automation of the tax system, we can only hope that this effort yields positive results.

Published in The Express Tribune, November 26^th, 2019.

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