Extending some relaxation to traders who registered a widespread and vocal protest, the government has accepted their demand to be taxed under a special regime after they, in return, agreed to come under the tax net and file their returns.
The traders also won the argument on not being questioned about undeclared assets - that have to be mentioned while filing tax returns.
The agreement was reached after the business community, especially traders, voiced their concern on the imposition of a 0.6% withholding tax on non-filers across all banking transaction valued over Rs50,000. What appears to be a landmark achievement for the government - that has so far failed to bring these traders under the tax net - the businessmen agreed that they will file their tax returns.
However, it was not all win-win for the traders. Finance Minister Ishaq Dar, in return, has given them a deadline - file tax returns by September 30. Up until then, traders would only be imposed 0.3% withholding tax on all banking transactions over Rs50,000. The rate would revert to 0.6% after September 30.
Read: Govt, traders meet halfway on 0.6% withholding tax rate
The agreement, reached after a marathon meeting with representatives of traders and the industrialists, covered all aspects of sales tax and income tax that are affecting traders, who contribute slightly less than one-fifth to the national economy but their contribution to taxes is negligible.
To give effect to the agreement, the government will promulgate an Ordinance in next 48 hours, said Dar. The Ordinance will provide legal cover to the reduced rate of 0.3% till September 30.
He said during this period, all the businesses that are not filing income tax returns will file the returns. From October 1st, the Ordinance will lapse and the government will start charging 0.6% tax on all banking instruments traded by non-filers.
Dar said all the participants have signed the agreement, which is in the interest of all the parties.
The 0.6% tax was levied with effect from July 1 that was aimed at collecting Rs35 billion in taxes during the current fiscal year 2015-16. At present, there are less than 880,000 income tax return filers in the country - a figure that is now expected to significantly go up.
The agreement may also provide an opportunity to expand the size of the formal economy, provided the FBR fixes its issues.
Wins for the traders
However, before agreeing to come into the tax net, the traders have remained successful in winning major concessions. Their biggest fear was that the FBR will harass them. The coercive action by taxmen is the sole reason behind traders not coming into the tax net, they say.
Traders are operating on thin margins but the FBR wanted to charge them at unrealistically higher rates, forcing them to hide their sales in undeclared bank accounts and minting money in the process.
Under the agreement, the turnover tax, currently at 1%, has been agreed to be reduced according to various trades and sectors. This is the major concession.
Some of the concerns of the traders were genuine, which have been addressed in the agreement, Dar said.
In certain cases, the traders turnover is in billions of rupees but their profits are in hundreds of thousands rupees, said Special Assistant to the Prime Minister on Revenue Haroon Akhtar Khan.
Read: Withholding tax: Traders observe shutter-down strike
He said now a realistic profit margin of the wholesalers and traders will be determined, which will address concerns of the trading community. This will also address issues that may arise during audit of the income tax returns.
“This is the single biggest success of the budget, which offers win-win situation to all the stakeholders,” said Khan.
“We want to come in the tax net and want to prove that we are not tax thieves”, said All Pakistan Anjuman Tajaran General Secreatary Naeem Mir.
Another major concession that the businesses community won was that the FBR will determine minimum retail price for the purpose of collecting sales tax.
The agreement states that the extension of schedule-III of Sales Tax Act will be undertaken/considered on sector-to-sector basis. Under this clause, the FBR will determine a price by including an extra tax into the price of the good. This will address the issue of sales tax evasion but the brunt will be borne by the consumers as the prices of goods will go slightly up.
According to the fifth clause of the agreement, further discussions will also take place to resolve the issue of filing income tax returns. The traders wanted a simple income tax return form.
Federation of Pakistan Chambers of Commerce and Industry President Mian Adrees said that the business community was satisfied with the outcome of the talks, appealing to all traders and industrialists to file their income tax returns and become honourable citizens of the country.
Published in The Express Tribune, July 10th, 2015.
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