ISLAMABAD: In an effort to attract more traders to the official tax system, the government plans to change the tax code through a presidential edict that would require all importers and producers to sell their goods to known clients.
In order to encourage traders to register as regular taxpayers or take advantage of the Federal Board of Revenue’s Tajir Dost Scheme (TDS), the suggested adjustments pertain to the “Know Your Customer” (KYC) digital invoice system.
A top tax official informed Dawn on Thursday, “We have written the ordinance and forwarded it to the Prime Minister’s Office.” The ordinance will be sent to the Presidency for proclamation following cabinet approval.
The tax department will be able to track sales data and evaluate buyers’ tax compliance thanks to the KYC requirements. The official stated, “This will assist us in identifying purchasers who are not on the tax roll and are not making tax payments.”
A draft tax ordinance has been forwarded to the PM Office for approval.
In order to encourage larger merchants to register under the TDS, the KYC process focuses on them rather than individual store owners. Strong opposition from traders’ associations has made it difficult for the tax authorities to take action against noncompliant retailers.
By linking sales to tax return files and removing the category of non-filers, the FBR anticipates that the new regulations will encourage retailers to submit returns under the regular tax structure. The FBR reports that trade return filings and tax payments increased significantly in the first quarter of the current fiscal year.
During the first four months (July-October) of the current fiscal year, the FBR has already collected Rs25.961 billion in taxes from merchants as part of its continuous efforts to ensure tax compliance. When compared to the Rs14.087 billion collected during the same period previous year, this indicates an increase of Rs11.874 billion, or 84.3%.
Additionally, in 4MFY24, there was a sharp increase in the number of shops filing income tax returns. Over 0.6 million merchants submitted returns in the first four months, up over 200 percent from the 0.2 million that did so in FY23. The FBR’s suggested compliance-tightening measures, which are anticipated to be implemented through the next presidential edict, are primarily to blame for this increase in return files.
Additionally, the tax received from merchants’ returns has increased by Rs4.076 billion, or 76.9 percent, from Rs5.3 billion in 4MFY23 to Rs9.376 billion in 4MFY24.
However, under Section 236G (advance tax on sales to distributors, dealers, and wholesalers), tax revenue collected from wholesalers and retailers was Rs6.786 billion in 4MFY25 as opposed to Rs3.184 billion in 4MFY24. Comparably, the amount of tax received from retailers under Section 236H (advance tax on sales to merchants) increased from Rs5.603 billion to Rs9.799 billion in 4MFY25. In comparison to the prior year, this indicates a 139 percent rise of Rs7.798 billion.
Launched on April 1, the TDS was intended to maximize trader involvement by providing rewards to traders who complied. Traders have expressed unhappiness with several scheme provisions, resulting in limited compliance. Although retailers in 42 cities are currently covered by the program, participation has been limited.
Even though the retail and wholesale industries account for 20% of the GDP, they only generate 4% of tax income. The government has been working for years to include this important industry in the tax system after realizing this imbalance.
Due to political obstacles and ongoing resistance from the trading sector, none of the three plans for registering traders that have been suggested since 2019 have been fully implemented.
