ISLAMABAD: After an unsuccessful voluntary registration push for the Tajir Dost Scheme (TDS), the Federal Board of Revenue (FBR) has proposed increasing withholding tax on supplies to non-filer wholesalers and traders, official sources told Dawn on Wednesday.

The FBR announced a sweeping registration drive under the TDS, offering incentives to traders and wholesalers to register voluntarily into the formal tax framework by the April 30 deadline.

In the first month of voluntary registration under TDS, FBR reported less than 100 traders despite a major drive to lure traders.

Official sources told Dawn that FBR has already worked on a proposal to increase withholding tax rates on supplies to non-registered traders and wholesalers under the TDS. The new tax rates will be announced in the budget 2024-25 and will come into effect on July 1.

Tax authorities blamed for failure of Tajir Dost Scheme

According to the proposed plan, the withholding tax rate on manufacturer supplies to distributors who are not registered with TDS will be increased to 10 per cent from the existing 0.2pc. The impact of this tax will be passed on to the retailers.

The manufacturers will withhold a 10pc tax from suppliers to distributors, which will be passed down the supply chain. The same is true for importers, who will withhold a 10pc withholding tax on supplies across the supply chain.

Currently, the FBR charges 0.1pc withholding tax on deliveries to filers’ tajirs, while non-filers pay 0.2pc withholding tax. The scheme is intended to increase the cost for non-registered tajirs.

According to the FBR estimates, the initiative will generate about Rs400 billion to Rs500bn in additional revenue annually.

According to the officials, FBR will contemplate whether to extend the deadline for traders to register voluntarily. Earlier, FBR offered facilities such as free registration and extended various tax-related benefits to incentivise participation until April 30.

The FBR will now begin obligatory registration of individuals after the deadline has expired. Failure to register will result in monetary penalties under Section 182 of the Income Tax Ordinance 2001.

Only 300,000 of an estimated 3.5 million retailers are actively filing tax returns. The newly proposed scheme aims to bring the remaining 3.2m retailers in major cities into the tax net.

FBR blamed for TDS failure

All Pakistan Association of Traders and Traders Action Committee Islamabad President Ajmal Baloch blamed the FBR for TDS’s failure. He claimed that despite repeated requests, the board has failed to address the business community’s concerns.

Mr Baloch went on to say that there has been no effective awareness campaign for general and small shopkeepers, and the business community’s protests have not been responded to.

The association demands that FBR extend the registration period further and address the business community’s concerns. He sought thorough consultation with all stakeholders.

Despite contributing 18pc to the gross domestic product, the tax contribution of the retail and wholesale sectors stands at a mere 4pc. The government has been striving for years to incorporate this sector into the tax net effectively. However, these attempts have yet to yield the desired results.

Three different schemes have been proposed since 2019, but none have been implemented due to a lack of political resolve and opposition from the trading community.

Under the current TDS, the categories of people who must be registered include traders, shopkeepers, wholesalers, retailers, dealers, manufacturer-cum-retailers, importer-cum-retailers, and anyone who combines retail and wholesale activities with any other business activity or person in the supply chain of goods.

The initiative is only for registering unregistered traders, dealers, wholesalers, and all unregistered importers and manufacturers who operate through retail outlets. This plan is not for companies or national or international chain stores operating in multiple cities.

All unregistered traders and shopkeepers will apply for registration under Section 181 of the Income Tax Ordinance, 2001, and register themselves in easy steps through the Tajir Dost module in the Tax Asaan app. They can register through their mobile phones, FBR’s web portal, or by visiting the board’s Tax Facilitation Centres. The mobile app is also available in Urdu.

There is no registration fee. Registration under the scheme only requires the applicant’s name, CNIC number, city name, mobile number, provider mobile and service power consumer number. No help from a tax lawyer, tax accountant or tax practitioner is required to register under the scheme.

Published in Dawn, May 2nd, 2024