The Federal Board of Revenue (FBR) on Tuesday informed the finance minister that the target of configuring 500,000 point of sales at retail shops with tax database and collecting additional Rs100 billion worth revenue cannot be achieved.
The FBR gave a briefing to Finance Minister Shaukat Tarin on his single largest initiative that he announced in his budget speech to broaden the tax base. But the numbers that the FBR shared with Tarin were contrary to his expectations from the drive, sources told The Express Tribune.
The minister was informed that there was no huge tax potential from the drive and the FBR at best can collect additional Rs15 billion from the POS initiative in the next fiscal year as against the budgeted figure of Rs50 billion and minister’s desire to generate Rs100 billion.
The finance minister was also informed that there were about 11,000 POS that had been registered in the outgoing fiscal year that paid Rs14 billion in taxes, which was actually Rs500 million less than the last year.
The reduction in tax collection despite capturing their sales was because the government charges 12% sales tax from the textile products retailers, the finance minister was informed. The FBR briefed the minister that the total volume of sales is roughly Rs3 trillion and only Rs670 billion was declared by those who configured with the FBR.
The estimates are that effective tax collection rate from the POS is 2% and by that account about Rs15 billion additional can be generated. FBR officials said that the integration of the retailers with its system would result into capturing additional about 15% to 20% sales. Even the retailers declare 100% increase in their sales, the collection cannot be more than Rs56 billion. The sources said the finance minister showed his displeasure over these numbers and asked the FBR to find an out-of-the-box solution. He directed that an advisory committee should be set up comprising three experts from the private sector to enhance the potential of collection from the POS.
As such there is no disagreement on the potential between the viewpoints of the FBR and the finance minister, as FBR’s views are based on the basis of the available data and the finance minister is looking at the potential of the retail sector, said FBR Chairman Asim Ahmed while talking to The Express Tribune.
The finance minister’s view was that independent studies point towards greater potential of revenue by integrating all types of retailers with the FBR system, said the chairman.
The government has shared Rs50 billion collection target from the POS with the International Monetary Fund. However, the FBR has not yet strengthened the directorate general of retail and there is no permanent director general. The tax recovery through point of sale in this fiscal year was Rs14 billion and the retailers declared Rs100 billion higher sales, said Tariq Chaudhry, member Inland Revenue Policy while speaking at the Senate Standing Committee on Finance on Tuesday. He said this year the integrated retailers declared Rs670 billion sales compared with Rs564 billion a year ago when there were not integrated with the FBR data.
According to the budget proposal, the online market places will also be integrated with the FBR’s point of sale system. Similarly, a retailer who has acquired point of sale for accepting payment through debit or credit cards from banking companies or any other digital payment service that is provided by the central bank will also integrate with the FBR system.
During the finance minister’s visit to the FBR, a meeting was held to discuss the way forward to bring identified potential taxpayers into tax net, an official handout of the FBR stated. The FBR chairman, while briefing the minister, said that the licensing of IT companies for installation and configuration of POS System would be completed by the end of August, stated the FBR.
Ahmed briefed that monitoring cells would be formed in each RTO headed by respective chief commissioner to supervise the POS integration for achieving desired results. Tarin directed to ensure effective tracking progress of installed POS machines and provide post deployment support to the retailers. He further directed to determine the total volume of sales by retailers to effectively tap the revenue generation through POS system after adjustment of input and output taxes. He directed to establish a cell at FBR HQ to fast track the progress on POS integration.
The sources said that the finance minister also showed his unhappiness over a briefing about the real potential of broadening the tax base. The finance minister was informed that out of 7.2 million identified people majority of them had little tax potential. The minister was also briefed about difficulties in bringing these people in the tax net. The 7.2 million potential taxpayers had been identified after retrieving available data of their withholding taxes through third party sharing but only 312,000 could be brought in tax net. Tarin also directed the FBR to stop sending audit notices to the taxpayers and stressed on the need to finalise the modalities of third party audit which would not only increase the tax net but would also generate much needed revenue.
Published in The Express Tribune, June 16h, 2021.