FTO Advises Traders to Assist FBR in Documentation of Economy

Federal Tax Ombudsman (FTO) has advised traders and retailers to come forward to assist the Federal Board of Revenue (FBR) in devising a mechanism to document the economy.

According to a special report of FTO on the retail sector, the FBR needs to hold a pre-budget session with the stakeholders to reach out to a common point of facilitation of taxpayers along with documentation of the economy under an automated environment without creating discrimination amongst different tiers of stakeholders.

Traders and retailers also need to come to the fore to accept this challenge and assist state authorities in devising a mechanism to document the economy, the FTO report said.

After analysis of the complaints received by the office of the FTO during the past seven months, and after due interactions of the Federal Tax Ombudsman with the office bearers of various Retailers Association and Anjuman Tajran Pakistan, recommendation to facilitate the integrated Retailers or those not liable to be integrated was also discussed. Based on the recommendations the policy wing of the FBR has been asked to consider the same for the budget 2022-23, FTO said.

The report stated that Pakistan has around 2 million retailers, including kiryanas, general stores, supermarkets, hypermarkets, etc. Chainstore Association of Pakistan is the largest trade body of organized retailers and represents over 200 high-end retail businesses in the country.

Despite the huge size of the retail sector, the total tax contribution from the sector has remained low. The reason behind this is that a considerable number of taxable transactions are made without any documentation and resultantly without any tax deduction. In order to enhance the effectiveness of the tax enforcement at the retail stage, in many economies, there have been precedents to monitor the retail sector by tracking the taxable transactions by recording the purchase invoices.

The FTO report revealed that the expansion of the tax base in Pakistan is recognized as an essential policy goal to increase domestic sources to reduce foreign aid dependence. However, the integration of businesses with Point of Sale (PoS) is a big challenge for both the FBR and businesses alike because of the complexity of legal provisions for PoS integration and glitches and delays in the automated system of FBR.

Overall, the integration process is fraught with procedural delays and systemic limitations. It is yet to be analyzed whether the scheme has made a sizeable contribution to raising the revenue and how successful is the process of monitoring the taxable activities through PoS integration.

It is recommended that while carrying on with the aim of more integration, FBR should ensure a taxpayer-friendly automated system removing the flaws pointed out in the study and doing away with the discretion by more and speedy automation systemic improvement, the FTO report added.