After protracted discussions with powerful class, the government on Monday introduced a new income tax plan to bring the mostly untaxed shops under the radar, although it omitted a substantial number of dealers from the scheme’s purview.
This month’s implementation of the revised plan was approved by Finance Minister Muhammad Aurangzeb. The program, which sought to collect Rs50 billion from current fiscal year 2024–25, was announced by the Federal Board of Revenue (FBR). However, the FBR would find it difficult to collect an additional Rs50 billion in income tax from merchants due to a few exceptions.
A component of the new $7 billion International Monetary Fund (IMF) initiative involves integrating shops, farmers, and exporters into the regular tax system. First, by informing the traders of a unique income tax system, the government has made a modest step.
The announcement states that under the new arrangement, all shopkeepers with up to 100 square foot stores in residential zones and those who are already registered filers are exempt from paying any tax at all.
The scope of the new plan does not extend to anyone who is already exempt from income tax under the Income Tax Ordinance of 2001. Similarly, instead of paying regular income tax, small businesses measuring little more than 5 by 3 square feet, temporary stores, kiosks, and shops up to 50 square feet in a commercial area would pay a flat tax of Rs 100 each month.
Every day, dealers in the wholesale marketplaces transact millions of rupees in small stores. Due to the merchants’ refusal to accept the draft plan that was released in March of this year, the new scheme’s reach has been severely curtailed.
After several rounds of talks with the traders, the new plan has been finalized. The tax paid by the salaried class is far more than that of the merchants. Following importers, contractors, and banks as the top three contributors, the salaried class ranks fourth in Pakistan.
By extending the definition of indicative revenue, the government has further eased the burden on merchants. Prior to this, the rental value of the retailer’s stores used to be used to determine their tax due. The inclusion of additional criteria, such as locations and fair market prices, is advantageous for traders situated in the nation’s major cities.
For dealers who choose to stay outside the net, the government has also tightened the punishment guidelines.
According to the new scheme, a trader or shopkeeper whose shop is required by law to apply for registration but either fails to register or fails to pay advance tax will have their shop sealed for seven days for the first default and for 21 days for each subsequent default. Likewise, if a trader is supposed to apply for registration but doesn’t, they risk a six-month jail sentence.
Dealers, distributors, retailers, manufacturer-retailers, importer-retailers, and everyone else participating in the products supply chain will all be included by the program. 42 Pakistani cities have been affected by the government’s implementation of the program: 25 in Punjab, 7 in Sindh, 6 in Khyber-Pakhtunkhwa, 3 in Baluchistan, and Islamabad.
