Govt to seal shops for tax violations

Measures aim to raise Rs70b by cracking down on non-certified receipts

ISLAMABAD:

The government has proposed seeking powers to seal shops and business premises for issuing three non-certified electronic receipts in a single day, as it introduces a slew of new streamlining measures to raise Rs70 billion in taxes in the next fiscal year.

These special powers have been sought under the Sales Tax Act, said the chairman of the Federal Board of Revenue (FBR) in a briefing to the Senate Standing Committee on Finance and Revenue. The committee met for the second consecutive day to deliberate and finalise recommendations on the Finance Bill, 2024.

The meeting was presided over by Senator Saleem Mandviwalla of the Pakistan Peoples Party (PPP).

The standing committee also proposed the mandatory acceptance of debit and credit cards by shops to discourage the cash-based economy. The FBR chairman hinted at reversing the budget proposal to impose a 10% sales tax on stationery and books after the standing committee asked him to withdraw the proposal.

However, the chairman said that instead of granting a zero-rating facility to the stationery business, the FBR may exempt the sector. The sector representative did not agree to the FBR’s proposal of tax-exemption status, which would deprive the businesses of the right to get tax refunds.

The standing committee insisted that stationery items should be exempted from sales tax, considering Pakistan has 22.5 million children aged 5 to 16 out of school.

The FBR chairman said the government has proposed making the monitoring and legal system stringent to discourage tax evasion. He said that if a shop does not issue three Point of Sale (POS) verified invoices in a single day, the FBR will seal the premises. He added that any business entity found with five receipts per week without a POS system will face closure. To address issues with malfunctioning POS-related software, the government will hire firms to provide software solutions and hold the licensee responsible for malfunctions.

The government has also introduced a new definition of tax fraud, which now includes the intentional evasion of legally due tax or obtaining an undue refund by submitting false documents, false returns, or withholding correct information. These measures aim to digitise the FBR’s system and fully integrate the business supply chains from manufacturing to retail.

In response to queries regarding past fraud incidents involving POS systems, the FBR chairman clarified that fraudulent activities were identified after their occurrence, revealing that some sales records were removed from the POS. The new integrated licensing system, managed by a third-party company, will provide comprehensive oversight and enhance online sales visibility.

The amended budget for 2024 aims to enhance transparency within the system and combat tax fraud, said the FBR chief. The committee chairman advocated for leniency in the case of sales returns, suggesting that penalties should be preceded by warnings. Furthermore, a penalty of Rs500,000 will be imposed for non-compliance with POS requirements. Through the integrated licensing system, the FBR now has a dashboard to monitor the operational status of POS machines across various retail outlets.

During discussions on sales tax provisions, Senator Sherry Rehman raised concerns about retailers’ reluctance to accept credit cards. In response, the FBR chairman assured the implementation of measures to enforce credit card payments as obligatory.

Non-compliance, including failure to accept credit or debit cards, may result in business closure. The FBR will also address consumer complaints, initiating action based on three complaints per day or five per week. Retailers found guilty of tax evasion will face blacklisting but retain the right to appeal to the chief commissioner.

According to another major proposal, it will be mandatory for businesses to issue electronic invoices from manufacturers to retailers. This step is being taken to ensure full recovery of the 2.5% income tax imposed on supplies to retailers, aiming to collect an estimated Rs95 billion in the next fiscal year.

The digitisation of businesses can only prove effective if there is no disruption of internet services by the government, said Senator Mandviwalla. The government often closes internet services during political rallies, elections, and special occasions.

The standing committee was briefed by representatives of the Pakistan Software Association, All Pakistan Textile Mills Association (APTMA), and Stationery Association about the problems they confront due to high taxation, making it difficult for them to run their businesses.

Moreover, the committee rejected the amendment concerning the ‘Abandoned Properties Organisation’ and stated that the Finance Bill should be limited solely to financial matters. Through an amendment in the law, the government had proposed that the Abandoned Properties Organisation—the entity managing the properties of Bangladeshi nationals—should be allowed to retain Rs14 billion in funds.

However, Senator Anusha Rahman argued that no entity should have the right to retain public funds and these funds should be deposited in the national treasury.

The administrator of the Abandoned Properties argued that his organisation has already surrendered Rs34 billion to the government. The entity needs some funds to retain the skeleton staff for protecting and managing these properties, he added. However, the committee did not accept his point of view and rejected the budget amendment.