FBR unveils system to collect taxes from services sector

Decision aimed at widening tax net, decreasing tax evasion

KARACHI: In a bid to enhance the tax net, the Federal Board of Revenue (FBR) has introduced a mechanism for real time monitoring and collection of income tax from the service sector including medical practitioners, restaurants, photographers, gyms and beauty parlours.

Speaking to The Express Tribune, FBR spokesperson Dr Hamid Atiq Sarwar said that the entity will make it mandatory for service providers to install electronic fiscal device (EFD) for real-time monitoring and collection of income tax.

"We have posted a draft on FBR website so that the matter could be discussed in public and we can receive feedback on it," he said.

Many service providers in Pakistan collect taxes from their customer but do not pass them on to the national exchequer while a handful of enterprises do not declare their actual incomes in a bid escape the tax net.

The share of services sector in Pakistan's GDP was recorded at 60% in the fiscal year ended June 30, 2019, however its share in the total tax collection remained low at 29.4% during the year.

On the other hand, the share of industrial sector in GDP stood at 21% during the period under review while it paid almost 70% of the total taxes.

According to FBR's SRO 296(I)/2020, various participants of the services sector have to share the data of transactions online so that the government could determine their actual incomes and subsequent contribution in the tax net.

Through the SRO, the FBR proposed amendment to Income Tax Rules, 2002 and invited recommendations from stakeholders.

The FBR proposed a new chapter VII (A) to the Income Tax Rules, 2002 namely 'Online Integration of Businesses.'

According to the details of this chapter, all companies operating in the eight major cities of Pakistan, ie Karachi, Lahore, Islamabad, Rawalpindi, Faisalabad, Multan, Peshawar and Gujranwala, shall be required to install electronic fiscal device.

Through the proposed amendment, FBR intends to make it mandatory on 12 kinds of service providers to install the electronic fiscal device including restaurants, hotels, motels, guesthouses, marriage halls, marquees, clubs and race clubs.

"Although, we have devised this draft to improve our tax system, lockdowns due to coronavirus may hinder it for now and lead to a delay in the necessary approvals," said the spokesperson.

Published in The Express Tribune, April 11^th, 2020.

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