ISLAMABAD: The federal cabinet approved on Tuesday a simplified scheme for taxing the indicative incomes of traders, retailers and specified people to raise an additional revenue of Rs400 billion to Rs500 billion.

The proposal was approved as part of the Federal Board of Revenue’s (FBR) restructuring plan in a federal cabinet meeting chaired by Caretaker Prime Minister Anwaarul Haq. However, the FBR will make further amendments to the scheme to include online sales in the scheme.

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As per the approved scheme, the criteria for estimating indicative incomes will encompass factors such as the location, value and rent of the shops. A specialised mobile application named ‘Tajir Dost’ has been developed to compute income and tax. Authorities believe this app will help streamline the income calculation process.

A tax official told Dawn that the FBR would decide when to roll out the new scheme. “We will also include online retail businesses in the scheme as well,” the official said.

Under the newly approved framework, the indicative income for tax purposes will be pegged at three times the rental value, reflecting the general proportion of rental expenses to income. Taxes under this scheme can be paid in 12 monthly instalments.

New plan targets Rs400-500bn revenue boost, aims to include online sales

Additionally, a 50 per cent discount will be offered to those proactive individuals who file their tax returns before the first monthly instalment.

Furthermore, the minimum tax can be adjusted based on the self-declaration in the annual return. This provision offers flexibility and encourages timely tax filing.

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

Since 2019, three different schemes have been proposed. However, none have been implemented due to a lack of political resolve and opposition from the trading community.

At present, only 300,000 out of an estimated 3.5 million retailers are actively filing tax returns. The newly proposed scheme aims to bring the remaining 3.2m retailers, primarily located in the country’s major cities, into the tax net. This initiative represents a significant step towards expanding the tax base and enhancing revenue collection.

Withholding tax regime

Meanwhile, the cabinet has also approved the FBR’s proposal to digitise the withholding tax collection. The new system, named the Synchronised Withholding Admin­istration and Payment System (SWAPS), addresses the current challenges faced by withholding agents, including failure to withhold the correct tax amount, delays in deposits, and inaccuracies in tax rates.

SWAPS intends to establish a direct link between the payer, payee, bank and the FBR through its portal, ensuring simultaneous payments to vendors and the government. The system will enable real-time checks for withholding rates, non-filer status, and exemptions, thereby eliminating the need to file withholding statements, reducing audits, and auto-populating returns.

Published in Dawn, January 31st, 2024