Govt to scrap fixed tax on traders

Move will cause Rs30b dent on national exchequer; smokers will pay more tax

ISLAMABAD:

Buckled under the pressure from its traditional vote bank, the government has agreed to withdraw a fixed Rs100 per day tax through a presidential ordinance that will exclude three-fourths of the total traders from the new tax ambit.

The step will cause a Rs30 billion dent on the national exchequer out of the total expected revenue of Rs42 billion that the Federal Board of Revenue (FBR) had estimated for fiscal year 2022-23 and will also help nearly 1.8 million retailers remain outside of the tax net.

The decision may risk annoying the International Monetary Fund (IMF) that has made broadening of the tax base an important point of the bailout package.

Sources said that the government had decided to promulgate a presidential ordinance to waive the tax on small traders and increase the tax burden on smokers to offset the loss of Rs30 billion.

Through the ordinance, the government may also withdraw the income tax levied on the allowances of Pakistani diplomats posted abroad. Once again, the PML-N led coalition government has let the traders escape the tax net after they won the support of PML-N’ senior party leader, Maryam Nawaz Sharif.

Maryam tweeted on Sunday that she had spoken to Finance Minister Miftah Ismail, who assured her that the solution to traders’ complaints would be found to their complete satisfaction.

As a result, the government decided to withdraw the Rs3,000 per month fixed tax imposed on the retailers consuming up to 150 units of electricity. The formal decision was taken during meetings that Finance Minister Miftah Ismail held with three different groups of traders on the instructions of Maryam Nawaz and Prime Minister Shehbaz Sharif.

However, those retailers that will be exempted from the fixed tax will pay under the old tax regime, which has already proven ineffective to collect due taxes from the wholesalers and retailers that make up 19% of the total economy. In the budget, the government had made a move to tax the small and medium-sized retailers through indirect means. In order to collect Rs42 billion more from 2.3 million commercial electricity connections, the government had slapped fixed tax through their electricity bills. The move will benefit around 1.8 million traders.

The fixed tax regime for the retailers had been rationalized and instead of percentage of the amount of monthly electricity bill, tax was charged on their monthly electricity bills as Rs3,000 for monthly bill up to Rs30,000, Rs5,000 if the monthly bill exceeds Rs30,000 but does not exceed Rs50,000 and Rs10,000 for monthly bill over Rs50,000.

These tax amounts will be doubled if the name of the retailer is not appearing on the Active Taxpayers List (ATL) on the date of issuance of monthly electricity bill.

The decision to exempt up to 150 electricity units consumers from the fixed tax would exclude 75% to 80% of the retailers and will cause around Rs30 billion revenue losses, according to a senior FBR official. The government was in process to further fine tune these numbers.

While talking to The Express Tribune, Finance Minister Miftah Ismail said that those who would not pay fixed tax will again be charged at old 10% withholding tax rates.

The Finance Minister said that the government will promulgate a President Ordinance to exclude the trades having up to 150 units’ monthly electricity consumption from the tax but importantly to introduce additional taxes to compensate any revenue loss.

Miftah Ismail added that the government plans to increase the taxes on both the cigarettes and green leafs (unprocessed tobacco) to increase the taxes. The minister said that the FBR has enhanced monitoring of tobacco factories and these factories now only have one option, either to pay taxes or shut the business.

The Finance Minister added through the same Ordinance the income tax exemption for Pakistani diplomats serving abroad will be restored. The procedural changes will also be made for the pharmaceutical sector. The Finance Minister has assured us that he would withdraw the fixed tax for small retailers but our association has sought a legal cover so that the FBR does not harass us, said Naeem Mir, the senior leader of the All Pakistan Anjuman-e-Tajran.

The government has agreed to exclude about 80% of the traders from the fixed tax and as a result about 500,000 retailers will pay the fixed tax, said Naeem Mir. Mir said that the association also demanded to increase the exemption limit to 300 units monthly consumption. Mir plainly stated that the retailers would not file their income tax returns and the fixed tax will be full and final settlement.

The Finance Minister also directed the FBR on Sunday to prepare another budget proposal to impose Rs30 billion more taxes to offset the impact of Rs30 billion supplementary grant to the Pakistan State oil.

This suggests that about Rs60 billion worth mini-budget is in the offing. The IMF has asked Pakistan to stick to the Rs153 billion primary budget surplus target for this fiscal year and any deviation may cost the country the loan tranche.

Published in The Express Tribune, August 2^nd, 2022.

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