The Federal Board of Revenue (FBR) issued the statutory regulatory order to implement the new scheme from April 1, 2024. With the issuance of this notification, Pakistan has fulfilled a condition set by the International Monetary Fund (IMF) ahead of the board meeting to approve the $1.1 billion final loan tranche.

Stakeholders have been given seven days to provide suggestions and raise objections to the draft of the scheme, named “Special Procedures for Small Traders and Shopkeepers.” However, the scheme’s scope has been expanded to include dealers, retailers, manufacturer-cum-retailers, importer-cum-retailers, or any person involved in the supply chain of goods.

This scheme is announced for Karachi, Lahore, Islamabad, Rawalpindi, Quetta, and Peshawar, which are major trade hubs in Pakistan.

Previous attempts to bring traders into the tax net have been unsuccessful, including compulsory door-to-door registration during General Pervez Musharraf’s martial law period. Even the Pakistan Muslim League-Nawaz (PML-N) too holds a soft corner for traders and has backed off from similar attempts, including one in 2015.

During the first eight months of this fiscal year, retailers paid a mere Rs11.2 billion in income tax compared to the Rs217 billion paid by the salaried class.
This time, the Special Investment Facilitation Council (SIFC) will monitor the progress of the compulsory registration scheme for retailers.

Details show that the salaried class remained the fourth-largest income tax contributor during the first eight months of the current fiscal year. The additional tax paid by the salaried class slightly exceeded the total tax of Rs61.3 billion paid by wealthy exporters.

According to the FBR notification, the scheme will apply to traders and shopkeepers operating through a fixed place of business, including stores, shops, warehouses, offices, or similar physical locations within the territorial civil limits, including cantonments, in the six cities.

The scheme is launched for registration and payment of minimum advance income tax, effective from April 1st. However, traders will make their first tax payments on July 15th, according to the notification.

Traders and wholesalers have been given one month by the FBR, expiring on April 30th, to register. Failure to register will result in forced registration by the FBR in its National Business Registry.

A central repository database of traders and shopkeepers will be accessible through a Tajir Dost module tax application or the FBR’s portal for registration and advance income tax payment.

Every trader is liable to pay monthly advance tax on the 15th of each month. Even if a trader’s income is below the income tax threshold, they must pay a minimum of Rs1,200 per annum income tax.

The FBR also announced a 25% tax incentive for traders who pay their full tax in advance before the due date or file income tax returns for the tax year 2023.

Tax returns for the tax year 2023 remained low at 4.2 million, compared to 5.9 million in the preceding year.

Traders will pay tax through a separate computerised payment receipt against the payment slip ID. The tax will be calculated based on the trader’s annual rental value, which is 10% of the fair market value of the business premises. This includes all business places, stores, warehouses, and any other offices.

According to FBR statistics, over 80% of bank accounts are not visible to FBR authorities, many of which are operated by these traders.

The fair market value will be calculated based on the valuation of immovable properties notified by the FBR. In cases where such valuations are unavailable, the district officer’s valuation will serve as the benchmark.
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