The government is going to amend the tax law through a presidential ordinance that will make it mandatory for all importers and manufacturers to sell their products to registered consumers to bring more traders under the tax regime.
“We have drafted the ordinance and sent it to the Prime Minister’s Office,” a senior tax official told Dawn. After the approval of the Cabinet, the Ordinance will be sent to the President for implementation.
The KYC provisions will allow the tax department to trace sales records and assess the tax compliance of buyers. “This will help us identify buyers who are not in the tax net and are not paying tax,” the official said.
The KYC scheme aims to focus on large retailers rather than individual shopkeepers, encouraging them to register under the trader-friendly scheme. Tax authorities are facing difficulties in taking action against non-compliant vendors due to strong opposition from trade organizations.
The FBR believes that the new measures will eliminate the category of non-filers help link purchases with tax return filing and force traders to file returns under the existing tax regime.
According to FBR, there has been a significant increase in the filing of business returns and tax payments in the first quarter of the current financial year.
As part of ongoing efforts to ensure tax compliance, the FBR has already collected Rs 25.961 billion as tax from retailers during the first four months (July-October) of the current financial year. are This shows an increase of Rs 11.874 billion or 84.3% as compared to Rs 14.087 billion collected in the same period last year.
Additionally, the number of retailers filing income tax returns for the previous financial year has increased dramatically in the first four months of the current financial year. More than 6 lakh retailers filed returns during the first four months, which represents an increase of 200 percent, compared to nearly 2 lakh during the same period in FY23. The increase in return filings is largely due to the FBR’s proposed measures to tighten compliance, which are expected to be implemented through an upcoming Presidential Ordinance.
Tax collected along with traders’ returns also increased from Rs 5.3 billion in the four months of FY 2023 to Rs 9.376 billion in the same period of FY 2024, which is an increase of Rs 4.076 billion or 76.9 percent.
On the other hand, tax collection from wholesalers and retailers under section ‘236G’ (advance tax on sales to distributors, dealers, and wholesalers) reached Rs 6.786 billion in the four months of the current financial year, up from Rs. 3.184 billion in the same period of the year.
Similarly, tax collected from retailers under section ‘236H’ (advance tax on sales to retailers) increased to Rs 9.799 billion in the four months of the current financial year, as against Rs 5.603 billion in the same period last year. was This represents an increase of Rs 7.798 billion, or 139 percent, over the previous year.
The Trader-Friendly Scheme, launched on April 1 this year, was designed to encourage more traders to participate, offering incentives to compliant traders. However, compliance with the scheme is limited and traders have expressed dissatisfaction with some of the provisions of the scheme. The scheme currently covers shopkeepers in 42 cities, but participation has been low.
Despite contributing 20 percent to the Gross Domestic Product (GDP), the retail and wholesale sectors contribute only 4 percent to tax revenue. Recognizing this disparity, the government has been trying to include this important sector in the tax net for many years.
As of 2019, three different schemes for registration of traders have been introduced, but none has been fully implemented due to political challenges and continued opposition from the business community.
