ISLAMABAD: The government has decided to implement fixed tax regime on small shopkeepers across the country to bring the sector under tax net, a senior tax official told Dawn on Friday.

He said an initial draft has already been finalised and the regime will be implemented by April 15 after consultations with stakeholders including shopkeepers and their representatives.

“We have set a target for our self to implement the regime by April 15”, the official added. Another official, however, said the deadline is too narrow and is likely to be extended. Moreover, Minister of State for Revenue Hammad Azhar, while speaking to Dawn also said the project is in its infancy right now and did not share any details about the proposal.

As per the initial proposal, the tax rates are likely to be based on certain benchmarks such as the shop size, area, type of business or turnover.

Move is for documentation purposes only; revenue potential to be nominal

“We have not decided on the final benchmark yet,” the official said while adding that the regime will only be limited to small shopkeepers.

The mode of payment, as per the initial working, will be either through token or in some other manner. The shopkeepers will be asked to display tokens on shop premises at a visible place in order to avoid harassment by tax officials. The token will serve as a proof that the business is tax compliant.

The revenue impact of this measure will be nominal as the final outcome will depend on the final scheme which will be implemented later, the official added.

The official said that two options are being considered for the implementation of this regime; either to introduce the tax to shopkeepers in Islamabad in the first phase or to introduce it across the country.

In this regard, the official added that representatives from the Federal Board of Revenue (FBR) held a meeting with stakeholders in Islamabad and “we are also planning to hold another meeting with shopkeepers from Islamabad and Lahore.”

A delegation of traders led by Islamabad Chamber of Commerce & Industry (ICCI) President Ahmed Hassan Moughal met with State Minister for Revenue Hammad Azhar at FBR office to discuss the proposals.

Azhar said that government, in consultation with stakeholders and business community, is committed to improve tax system. He also urged the business community to come up with proposals to address the drawbacks of taxation system. He said that traders should also give suggestions to enhance the country’s tax base.

Moughal said that government should give incentives to traders in tax matters so that those who were out of tax system can be motivated to come under the tax net. He said that ICCI had floated the idea of fixed tax for traders a long time ago and it is encouraging to see that the current government is considering it. He said that government should make different categories of traders and impose fixed tax based on their taxpaying ability.

The FBR’s move to introduce fixed tax regime comes as existing schemes such as the turnover tax for small retailers failed to deliver desired results. Moreover, industrialists have also complained to the government that the traders were not contributing their share to the income tax.

The proposal for fixed tax regime, based on shop size, was initially floated in a tax reform commission report headed by Syed Masood Naqvi. The report was submitted to the government in February, 2016, however, the proposal failed to materialise.

Ajmal Baloch, a local leader representing traders, said that imposition of fixed tax is a good initiative; however, government should allow traders to pay taxes through old system. He said that government should also consider fixed tax on annual turnover.

In the recently passed Finance Supplementary (Second Amendment) Act, 2019, the government has already introduced a special clause in the Income Tax Ordinance, 2001 empowering the federal government to prescribe special produces for scope and payment of tax, filing of return and assessment in respect of such small traders and shopkeepers in such cities or territories as may be specified.

Published in Dawn, March 23rd, 2019