ISLAMABAD: The Federal Board of Revenue (FBR) on Thursday notified three schemes including simplified tax regime for traders, fixed tax regime for small shopkeepers and issuance of business licences to bring the undocumented sectors under the tax net.

The schemes are part of government’s documentation drive to bring small businesses in the tax net. Despite several attempts in the past, documentation efforts have been thwarted by powerful traders’ representatives.

The FBR has sought feedback from stakeholders after the schemes will be put before the federal cabinet for final approval.

Economic Affairs Minister Hammad Azhar said that despite contributing 20 per cent to the country’s total GDP, the retail sector’s contribution to the tax was just 0.25pc. He said that around 80-90pc of the retailers were not registered with the tax authorities.

Three schemes notified for shopkeepers and small businesses to register themselves

Simplified tax regime

The FBR notification read that the scheme for traders has been prepared after carrying out practical research and discussions with trade bodies. It added that the draft also incorporates solutions to the genuine problems faced by traders regarding tax compliance.

The scheme will apply to retailers and wholesalers, who opt to file returns under the non-jurisdictional simplified tax regime, will not require record keeping and will be carried out on receipt minus expenditure.

Moreover, the FBR said that those availing the scheme will not be subject to any audit.

The scope of the scheme will extend to traders with a turnover of less than Rs50 million whereas other benchmarks for qualification include self-invested equity of less than Rs50m, cost of fixed assets less than Rs100m and number of employees less than or equal to five.

The threshold will increase by 10pc each year to account for economic progression in the business.

Moreover, individuals not registered with the FBR will be registered under the scheme by submitting the registration form on Integrated Risk Information System (Iris) via the FBR website. Each person will electronically file a simplified return of income accompanied with evidence of payment of due tax and simplified wealth statement.

The tax rates will be computed at the rate prescribed under division 1, part I of the First Schedule of the Income Tax Ordinance, 2001.

Small shopkeepers

The FBR also announced another scheme called Special Procedures for Payment of Taxes by Small Shopkeepers.

The draft defines small shopkeeper as an individual who carries out business at a premises having covered area less than 300 square feet but does not include a shopkeeper if he is engaged in the activity of a jeweler, wholesale, warehouse, real estate agent, builder and developer, doctor, lawyer, chartered accountant.

The definition also does not include retailers operating as unit of a national or international chain of stores, a retailer operating in an air-conditioned shopping mall, plaza or center, a retailer who has a credit or debit card machine, any person whose cumulative electricity bill exceeds Rs300,000 during the last 12 months and an individual covered under Section 99C of the Income Tax Ordinance, 2001.

The rate of tax under the scheme will be 2pc of the turnover or the amount of fixed tax rates as notified by the FBR. For the tax year 2019, the token tax will be Rs35,000 if the shop is located in the area specified as Category A and the shop premises — in which the business activity carried out — does not exceed 150 square feet.

However, for shops located in Category B area, the rate will be Rs40,000 for tax year 2019 if the area covered by the shop exceeds 150 square feet but does not exceed 300 square feet and it will be Rs20,000 if the shop is located at any place other than Category A and the shop premises in which the business activity is carried out does not exceed 150 square feet.

Moreover, the rate of token tax will be Rs25,000 if the shop is located at any place other than Category A and the shop premises in which the business activity is carried out exceeds 150 square feet but does not exceed 300 square feet.

The token tax will be paid in two equal instalments twice in a year. However, the shopkeepers will not be subject to audit or examination.

The shopkeepers, after paying taxes in an authorised bank, will be issued a sticker to be displayed in a prominent place at their respective business premises.

The shopkeeper will also be required to submit a one-page return form.

Registration of businesses

The FBR also issued rules for an automated system of business registration to obtain licences. The registration will be mandatory for all businesses and implemented through respective district administrations.

The FBR notified a simple application form for any person engaged in any business, profession or vocation to apply for issuance of licence.

The applicant having a mobile phone can file the form on the Iris or any software application developed by the FBR for the purpose. Subsequently, the system-generated business licence will be emailed to the applicant.

In case of no mobile phone, the person can provide particulars to the service provider or personnel in a kiosk established by a regional tax office for online filing of the form. The particulars of the form will be verified along with complete bio-metric verification of the applicant and give system-generated printout of the licence to the applicant.

Further, individuals who are already present on the list of the active taxpayers will be treated to have filed application and the system-generated licence will be emailed to their respective email address registered with the Iris.

The FBR notice said that business-owners will have to display licence at their respective business premises.

Published in Dawn, August 2nd, 2019