FBR is planning a retail-specific tax scheme

FBR is planning a retail-specific tax scheme: As part of the documentation to reduce the size of the informal economy, the Federal Board of Revenue (FBR) has developed a simplified method for taxing the indicative incomes of traders, retailers, and specified individuals.

According to projections made by the tax department, the newly proposed plan has the potential to raise between Rs400 billion and Rs500 billion in income tax revenue.

The federal cabinet was presented with the specifics of the new tax plan for approval. This plan is intended to work out the assessed pay of brokers and retailers, a senior expense official to Sunrise on Wednesday.

The retail and wholesale sector’s tax contribution is just 4%, despite the fact that it contributes 18% to the GDP.

The government has worked diligently for years to effectively integrate this sector into the tax network because it is aware of this disparity. However, these endeavors have not yet produced the desired outcomes.

The proposal proposes that shop location, value, and rent will be taken into account when calculating indicative incomes. A specialized mobile application known as “Tajir Dost” has been created to calculate income and tax to make this process easier. The income calculation process is expected to be streamlined by this app.

The specific rate that will be used to calculate the indicative income will be three times the rental value based on the usual ratio of rent to income. 12 equal payments will be required to pay the tax each month.

In addition, proactive individuals who file their tax returns prior to the first monthly installment will receive a discount of fifty percent.

In addition, the annual return’s self-declaration can be used to adjust the minimum tax. This provision encourages timely tax filing and offers flexibility.

The Finance Supplementary (Second Amendment) Act of 2019 was passed by the National Assembly. This act added a new clause to the Income Tax Ordinance 2001, giving the federal government the authority to set up special procedures for the scope, payment, and filing of returns and assessments for small traders and shopkeepers in specific cities or territories.
There have been three distinct plans proposed since then.

However, due to a lack of political will and opposition from the trading community, none have been implemented.

Out of the estimated 3.5 million retailers, only 300,000 are currently actively filing tax returns. The remaining 3.2 million retailers, most of whom are situated in the nation’s major cities, are the target audience for the new plan.

This initiative is a significant step toward improving revenue collection and expanding the tax base.

Regime for withholding taxes Through a brand-new system known as the Synchronized Withholding Administration and Payment System (SWAPS), the Federal Reserve is nearing completion of the digitization of withholding tax collection. The Asian Development Bank uses this as one of its disbursement link indicators.

Currently, withholding agents are applying incorrect tax rates to the tax department, evading deposits of the actual tax amount, failing to withhold the actual tax, and delaying deposits. Similarly, it is difficult to verify tax credits for withholders because these agents do not provide details of the person from whom tax is deducted when lump-sum payments are made.

According to the specifics of SWAPS, it is made to connect the payer, payee, bank, and FBR via the SWAPS portal. With this system, tax payments to the vendor(s) and the government can be made simultaneously. It will guarantee complete CNIC, NTN, and IBAN verification of the withholder.

The system can check the withholding rate, non-filer status, and exemptions in real time. Additionally, returns will be automatically populated, audits will be minimized, and the requirement to file withholding statements will be eliminated.