Govt levies Re1 tax for lottery scheme

Also decides to enhance penalties by 300% against those unwilling to integrate system with FBR

ISLAMABAD:

The government has imposed Re1 per invoice tax to raise money for lottery scheme and has also decided to enhance penalties by 300% against individuals and businesses that will not integrate with the online tax system.

The shopkeepers have started charging the new tax from customers while the penalties will be imposed after promulgation of a Presidential Ordinance, which is being vetted by the Law Division.

The government decided to increase penalties after its single largest initiative to enhance collection by Rs50 billion through integrating the Point of Sales (POS) with the Federal Board of Revenue (FBR) system failed to yield desired results during the first two months of the fiscal year.

The Rs1 per sales tax invoice fee has been imposed to raise financing for giving away prizes and improving systems, said FBR Chairman Dr Mohammad Ashfaq while confirming the new development to The Express Tribune.

The POS are electronic registers and card readable machines for conducting sales transactions that the FBR wants to get access to, to check under invoicing of sales.

Every customer will pay Re1 as POS service fee over and above the value of the invoice. The money will go to the FBR for provision of certain services to the taxpayers. The tax has been imposed under Section 76 of the Sales Tax Act, which empowers the finance minister to levy any fee, said the sources.

“The Re1 per invoice fee is very insignificant but it will go a long way in improving the systems,” said Dr Ashfaq while defending the decision.

It is estimated that the FBR will collect significant amount by charging Re1 per invoice. At a very low base of about 13,700 integrated POS, the FBR would collect roughly Rs22 million in service fee in August alone. At this low base, the FBR will generate roughly Rs260 million in this fiscal year by charging just Re1.

Finance Minister Shaukat Tarin wants to increase the POS base to 500,000, which will generate billions of rupees in cash for the government.

However, critics say that the government was running away from its obligations towards the citizens as it is the responsibility of the state to improve its system and allocate funds for schemes that it wants to implement as per its wisdom.

But the FBR chairman said that the Re1 will be returned to the people in shape of prizes that they will win on purchases from those retailers who are integrated with the FBR system. The first prize will be Rs1.5 million and second Rs1 million, he added.

Tarin wants to launch a prize scheme to encourage people to buy from the organised sector. The prize scheme might be launched by the end of this month with first prize of Rs1.5 million, said the FBR chairman.

For the current fiscal year, he has set the revenue generation target at Rs50 billion from the initiative, which is also conveyed to the International Monetary Fund (IMF).

Additional penalties

The finance ministry has proposed to increase maximum penalties from Rs1 million to Rs3 million against those persons and businesses that will not integrate their POS with the FBR’s online system, sources told The Express Tribune.

The penalties have been included in the proposed Third Tax Laws Amendment Ordinance 2021, which is currently at the vetting stage in the Law Division, they added.

The proposed legal changes also include expanding the lists of businesses that will be required to integrate with the FBR, they added.

While addressing a press conference on Tuesday, the FBR chairman said that during the first two months of current fiscal year (July-August), about 550 more retailers were integrated with the FBR’s online system. One retailer can have more than one POS.

But the chairman did not share the additional tax collection figure from these new persons and the integration number also appeared too low.

The number of POS was hardly 13,700 by the end of August, which suggests that the FBR’s drive to broaden the base was moving ahead at a painstakingly slow pace.

Sources said that while realising the situation, the finance minister has given directives to enhance penalties to force people to come in the tax net and fully declare their sales.

At present, the maximum penalty is Rs1 million and after two months of default, the business premises can be sealed.

According to the new proposal, the sources said, if a person fails to integrate his business, such person shall be liable to pay a Rs500,000 fine on the first default, which will further increase to Rs1 million on the second default after 15 days.

If the person still chooses to remain unplugged with the FBR system, he will have to pay a penalty of Rs2 million on the third default after another 15 days and on the fourth default the penalty will increase to Rs3 million.

After the fourth default, his business premises will be sealed till such time he integrates his business, the sources said.

According to another proposal, the FBR will have powers to declare any person or class of persons to integrate their invoice-issuing machines with the FBR’s computerised system for real-time reporting of sales.

A third significant proposal is that the FBR will also get the powers to discontinue gas and electricity connection of any person required to integrate their outlets with the FBR under the Sales Tax Act.

Similar powers are also being obtained under the income tax law to discontinue gas and electricity connections of those people who do not file their annual income tax returns.

Sources said that the FBR would also offer incentive of 1% reduction in GST rate for those outlets that are integrated with the FBR and make payments through digital modes. The GST rate for them will be 16%.

Organised retailers cry foul

But organised retailers are complaining that they are being unduly burdened by the government, particularly at a time when their businesses have been adversely affected due to coronavirus mitigation measures.

Out of the past 15 months, the organised retail businesses remained shut for almost six months, said Rana Tariq Mehboob, who owns the famous clothing brand, Royal Tag.

He said that all regulatory and documentation measures were being forced on the retailers operating in big shopping malls while the retailers working in small and mid-sized markets were being left out.

“The cost of being a documented retailer is 29% higher than the undocumented retailer,” said Mehboob.

He said that the tax machinery’s efforts for documentation of the economy through various withholding tax regimes only increase the cost of doing business for the segment already registered with the tax machinery.

Sources said that there were also issues with the real-time integration being faced by those who are connected with the FBR computers. Many retailers still submit their invoices after 24 to 48 hours of the transaction, which would deprive the customers of a chance to participate in the lottery scheme.

FBR officials said that in order to address such issues, it has decided to launch a licensing regime for the retailers.