FBR fails to achieve POS target

Could link only 12,000 Point of Sales machines of big retailers with its system

ISLAMABAD:

The Federal Board of Revenue (FBR) has failed to achieve its target to integrate big retailers with its system and collect an additional Rs50 billion in taxes despite giving away hundreds of millions of rupees in prizes and spending funds on advertisements.

During the last fiscal year, the FBR integrated less than 12,000 Point of Sales (POS) machines with its system, according to the FBR officials. As a result, the total POS machines that have so far been linked with the FBR stand at 23,200 – a figure that is far less than the target the former finance minister, Shaukat Tarin, had given to the FBR.

The last government had announced that it would connect 500,000 POS at retail shops with the tax database and collect an additional Rs50 billion in revenues.

To achieve these goals, the previous government had also started giving Rs53 million per month in prizes through computer balloting aimed at incentivising customers to purchase goods from the registered big traders – known as tier-1 retailers.

The tier-1 retailers are those who work in big shopping malls, use debt or credit card machines, are in some manner already linked with the formal economy and are easy to track and bring to the tax system.

However, despite these advantages the FBR could not achieve the assigned targets.

Details showed that against the goal of collecting an additional Rs50 billion in sales tax, the net additional taxes paid by these retailers were just Rs6.3 billion.

On the total declared sales of Rs1.5 trillion, these retailers paid Rs27.8 billion in taxes, which was higher by Rs6.3 billion over the collection made from the tier-I retailers in the preceding year.

Integration of 500,0000 sales machines with the FBR system was the single largest initiative by the last PTI government that the then finance minister had announced in his budget speech to broaden the tax base.

Tarin used to claim that the lottery scheme would help to achieve these goals, as he had got similar results in the 1990s when he was heading Habib Bank Limited.

However, the FBR had informed Tarin in June last year that it at best can collect additional Rs15 billion from the POS initiative as against the budgeted figure of Rs50 billion and minister’s desire to generate Rs100 billion.

The FBR officials had also told Tarin that the integration of the retailers with its system would result into capturing additional about 15% to 20% sales. But the former Finance Minister was of the view that the scheme can be made successful by giving prizes to the customers through computer balloting.

The FBR had held first balloting in January this year and the seventh in July, distributing Rs371 million among the people but yet failed to achieve the results. In addition to that the FBR had also spent millions of rupees on advertisement to create awareness about the POS system.  In order to finance the prizes, the government charges Rs1 per receipt from the consumers –an unjustified levy. But the spokesman of the FBR, Asad Tahir Jappa, insists that the POS initiative was successful despite failing to achieve the targets.

“The scheme was aimed at raising general awareness among the citizens and the taxpayers and through them to pressurize the retailers to issue the valid sale and tax invoices”, said Asad Tahir. He said that the number of invoices issued in July increased to 46 million and people verified 400,000 of those invoices.

It seems the FBR has outsourced its job to pressurize the retailers –even to go after the traders working in largely the formal sector. The ruling alliance –the Pakistan Democratic Movement –has already surrendered to the small retailers and has announced to withdraw nominal fixed tax imposed on them in the budget.  

As a punitive measure, the FBR had also disallowed 60% input tax adjustment to those tier-1 retailers that would not register with the FBR. Yet, this action too failed to yield the desired results. The Express Tribune had reported that the FBR gave Rs16 billion illegal refunds to those tier-1 traders who were not linked with its systems.

There was a suggestion by the FBR officials that the government should discontinue the prize scheme due to its poor results. But the FBR spokesman said that the 8th computer balloting will be held next week.

A senior FBR official said that the taxmen were extremely under resourced and they did not have vehicles to go after the traders and force them to integrate their sales. Also, there was shortage of workforce and thousands of positions were vacant. Many retail shops were issuing fake invoices but the FBR did not have the ability to go after them.

The FBR had demanded executive allowance of 150% for its officers but the Finance Ministry has not yet cleared the file. The ministry has objected that the FBR officers were availing up to 12 salaries in awards every year. On an average, every FBR officer was getting nearly six salaries in awards.  Two years ago, there was a unique case where one officer got 36 salaries in awards but the FBR did not take any action against the officer who sanctioned these awards.

Published in The Express Tribune, August 13^th, 2022.

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