In Pakistan, large retail store chains win taxation relief

FBR accepts demand of halving withholding tax rates; cuts minimum income tax rate for traders

ISLAMABAD: The Federal Board of Revenue (FBR) on Monday struck a deal with traders - second in five months - and agreed to relax condition on audit and to reduce the latter’s income tax rates in return of documenting their sales.

As part of the deal, the FBR has extended the deadline for online integration of Pakistan’s large retail chain stores till the end of March, which had to be implemented from December 2019.

The FBR has accepted the demands of not opening the books of the large retail stores of past up to six years and halving the withholding tax rates and minimum income tax rates, a signatory of the agreement told The Express Tribune.

The agreement was signed by interim chairperson FBR Nausheen Javed on behalf of the government, Irfan Iqbal Sheikh, President Lahore Chamber of Commerce & Industry (LCCI) and Rana Tariq, Chairman of retail store chains on behalf of the large retailers.

Both the LCCI President and FBR Spokesperson Dr Hamid Atiq Sarwar confirmed that an agreement was reached between the two parties.

It was the second deal that the FBR reached with the trading community during the past five months. Earlier, in October last year the FBR had caved in to the demands of the small and medium sized traders without achieving the objective of broadening of tax base and documenting the economy.

The FBR’s income tax base shrank 12% in the tax year 2019 as only 2.5 million taxpayers submitted their annual returns against 6.2 million National Tax Number holders.

This time the FBR has entered into a deal with the large retailers on the issue of Point of Sales installation -a real time invoicing system for documentation of sales being made by large retail stores across Pakistan.

It is not clear whether the FBR sought the consent of the International Monetary Fund before entering into a concession deal.

“The chain store retailers and the FBR have agreed to make the POS initiative a success for which a close collaboration mechanism has been decided,” confirmed spokesman of the FBR Dr Hamid Atiq Sarwar to The Express Tribune.

We have extended the date of joining POS till March 31 for those who give their consent by March 15, said Sarwar.

Dr Sarwar said that the issues and fears of large retailers regarding unnecessary burden of withholding taxes and distortions due to minimum taxes will be sorted out in the upcoming budget exercise and we will move to real income taxation instead of presumptive taxation.

The FBR is pleased to condone the time limit up to 31st March for online integration of tier-I retailers POS with Board’s computerised system for real time reporting of sales subject to the condition that such tier-I retailers furnish in writing their willingness to integrate all their POSs in terms of the rules to the respective RTOs/LTUs by 15th March, 2020, according to a notification issued on Monday.

The provisions for mandatory integration of retailers were introduced in the Sales Tax Act, 1990, through the Finance Act, 2019, and proper rules were laid down. The deadline of 15th December, 2019, was given to all retailers to integrate their POSs with FBR.

Live integration was operationalised with effect from 1st November 2018 but as of end January, the FBR integrated 286 retailers with its real time invoicing system for documentation of sales.

Out of eight demands that we presented, the FBR has accepted our six demands, said Irfan Iqbal Sheikh, the President of the LCCI. He said that the FBR has accepted their demand to halve the minimum income tax rate from 1.5% to at least 0.7%. Similarly, the FBR also agreed to reduce the withholding tax rate from 4.5% to 1.5%, he added.

Sheikh said that the tax rates will be reduced in the next budget.

He said that the FBR has also agreed to end its discretionary practice of disallowing allowance on expenses arbitrarily and also accepted the demand of allowing input adjustment up to 95%.

“The FBR has agreed that it would not perform income tax audit of last five years and sales tax audit of last six years”, said the LCCI President.

In return of these concessions, the large retail chain stores would ensure compliance and install POSs systems, he added. These concessions will be available to only those large retail chain stores that by March 15 give their willingness to install POSs and complete the task by March 31, said the LCCI President.

It was also agreed between both the parties that committees will be setup in all cities to ensure integration of retail chain stores with the FBR systems.