Small traders get simplified tax scheme

The government has introduced major tax relief and structural reforms to reduce the burden on businesses, exporters, salaried persons and small traders, while transforming the Federal Board of Revenue (FBR) into a more transparent, facilitation-oriented and technology-driven institution, Minister of State for Finance Bilal Azhar Kiyani said on Saturday.

Speaking at the Lahore Chamber of Commerce and Industry (LCCI), Kiyani said super tax had been completely abolished for exporters and businesses with annual income between Rs150 million and Rs500 million, while the rate for companies earning more than Rs500 million had been reduced from 10% to 8%. For exporters, the tax deduction on export proceeds had also been reduced from 2% to 1.25%.

He said the government was also introducing a new tax operating model featuring centralised and faceless audit and assessment mechanisms to reduce individual discretion, harassment and possibilities of collusion. Welcoming the minister, LCCI President Faheemur Rehman Saigol said the chamber, with around 48,000 member businesses, represented one of Pakistan's most important business communities. He noted that Pakistan's economy had witnessed encouraging developments, including remittances reaching $41.6 billion and Moody's upgrading Pakistan's credit rating from Caa1 to B3.

However, he stressed that taxation, cost of doing business and energy tariffs remained major challenges. He particularly highlighted high electricity tariffs, enforcement actions by different government agencies, and the rapid conversion of agricultural land into housing schemes. He said the government must protect productive agricultural land and broaden the tax base. He also expressed concern over the proposed relocation of 8,000 to 10,000 industries, saying Pakistan lacked the industrial zones and infrastructure required to relocate even a fraction of these units within a short period.

Kiyani said the government believed that the private sector must have a meaningful role in policymaking. He said representatives of chambers had been invited to directly present their proposals before the budget so that the government could incorporate practical recommendations into policy.

The minister said exporters had also been provided relief in the form of a reduction in tax deducted on export proceeds. Previously, exporters faced a combined deduction of 2%, comprising 1% advance income tax and 1% minimum tax, which had now been reduced to 1.25%.

He said dedicated FBR facilitation structures had been established in major export hubs including Karachi, Faisalabad, Lahore and Sialkot, with Multan, Hyderabad and other areas also being brought into the system.

Talking about the Export Development Fund, Kiyani said its board had been reconstituted with an exporter appointed as its chairman and leading exporters included on the board to give the private sector a stronger role.

He said customs reforms, including the Faceless System, were being introduced to eliminate direct interaction between appraisers and importers and reduce collusion. Similarly, a new Tax Operating Model was being introduced under which audit and assessment processes would be centralised and faceless rather than being handled directly at the RTO level.

Audit and assessment orders would be generated through a centralised, CRM-driven system using taxpayers' returns and other relevant information.

Speaking about salaried persons, Kiyani said the government had provided significant relief by abolishing the surcharge applicable to the salaried class and reducing tax rates across almost all income slabs. He said the prime minister had directed that whenever fiscal space became available, relief should first be provided to those sections bearing a disproportionate tax burden.

Turning to small traders, the minister said the government had developed a new simplified tax scheme after extensive consultations with representatives of the business community. The scheme would be available to small traders with annual sales of up to Rs200 million and would be optional, meaning traders could continue to file returns under the normal tax regime if they preferred. One of the major advantages of the scheme was that participating shopkeepers would generally not be subjected to routine audits based merely on differences relating to previous years. However, an audit could still be conducted in cases involving clear and unusual discrepancies identified through FBR's CRM or third-party information.

Participating shopkeepers would also receive a physical FBR plate to be displayed outside their shops. The objective was to prevent routine visits by FBR officials for unnecessary inquiries and provide greater protection against harassment.

Traders covered under the scheme would not be required to become withholding agents and would not be subject to the POS machine requirement. He said an estimated 600,000 to 700,000 shopkeepers with commercial electricity meters were already filers.