ISLAMABAD: Pakistan on Wednesday launched a simplified tax scheme for small traders, setting a levy of 1 percent of declared annual sales as the government seeks to bring millions of retailers into the tax net and ease the burden on existing taxpayers.
At around 10 percent, Pakistan’s tax-to-gross domestic product (GDP) ratio remains among the lowest in the world. The South Asian country has been trying to increase its tax revenue in line with recommendations of the International Monetary Fund (IMF) as it eyes sustainable economic growth.
The Federal Board of Revenue (FBR) collected a record Rs11.7 trillion ($42.2 billion) in taxes in the fiscal year that ended June 30, up about 26 percent from a year earlier, though it narrowly missed its revised target of Rs11.9 trillion ($42.7 billion). This year, the country has a tax target of over Rs15 trillion [$53.96 billion].
Speaking at a press conference on Wednesday, top finance officials announced the launch of a mobile application for the Fixed Tax Asaan Scheme for small traders and shopkeepers with an annual turnover of less than Rs200 million ($720,585).
“I would like to congratulate the [small] traders. The scheme that we developed with their consultation and guidance, and the app that we included in the consultation and finalized, has been officially launched today,” State Minister for Finance Bilal Azhar Kayani said.
“This app is available for those traders, who are not yet on the tax net. And this app is also available for those traders, who are in the tax net. The only condition is that you are a trader, whose annual sales are less than 20 crores.”
The tax amount will be 1 percent of declared sales, which will include withholding tax. Traders having Rs200 million ($720,585) annual turnover will have to pay at least Rs25,000 ($90) tax, according to the state minister.
Those availing the scheme will not have to install a Point of Sale (PoS) machine.
Federal Finance Minister Muhammad Aurangzeb said small traders have the option to choose between the regular and fixed tax schemes.
“It has been made optional,” he said. “Optional in the sense that if you want to go in the regular scheme, you can go in the regular scheme.”
Pakistan has pursued tax reforms in recent months that aim to increase revenue collection and broaden compliance, with authorities also preparing an artificial intelligence-based faceless system for inland revenue operations to reduce direct interaction between taxpayers and officials.
Aurangzeb emphasized his government’s resolve to expand the country’s tax base.
“The reason is that if any section of Pakistan does not come into the main stream, then the tax system cannot run. This is a very simple thing. You all cover it,” he said.
“Sometimes it is about the salary class, sometimes it is about corporate, sometimes it is about our multinationals. So when you are a country of 25-26 crore people, you have to deal with the FBR. You have to deal with the tax authority of the country.”
FBR Chairman Rashid Mahmood Langrial expressed hope that the 1 percent tax scheme will make it easier for small traders to pay their taxes.
“I think there is no flaw in it,” he said at the presser. “I am sure it will be a roaring success.”
Kayani said authorities had for years tried to increase the tax base through the regular scheme but could not fully implement the decisions.
“Look, the thing is that you have been trying for years from a normal tax regime. We are talking about the number of hundreds of thousands [of rupees],” the state minister said.
“In that number, on that scale, it was not possible. That is why an out-of-the-box approach has been thought for small shopkeepers. Look, we will have to rely on shopkeepers. That is why we have made this scheme with the consultation of these merchants, who have prioritized our scheme.”
Kashif Chaudhry, president of Central Association of Traders, urged small traders and enterprises to duly pay their taxes and submit their returns.
“This scheme, which has been discussed for several months, according to this scheme, you have the option that you have to pay tax on less income, at least Rs25,000. And you have to pay 1 percent tax on turnover,” he said.
“Now you have the option but not to file your returns, I think, this is a crime. That is why I want to tell the merchants of the country to file their returns.”
