Retailers' documentation: implementation of new rules uphill task for FBR: experts

Sales tax experts have termed the implementation of the new retail rules for documentation of retailers as an uphill task for the Federal Board of Revenue (FBR) due to application of standard rate of 17 percent sales tax on retailers, replacing nominal turnover sales tax @ 0.5 to 0.75 percent. A Karachi-based sales tax expert explained here on Saturday that the FBR had issued S.R.O. 608(I)/2014 on Tuesday to amend the Sales Tax Special Procedure Rules, 2007.
The new scheme of sales tax for retailers has been given in the said rules. Sales tax on retail sector in Pakistan always remains a sensitive subject. In past, governments failed or were reluctant to enforce sales tax on this sector. Through Finance Act, 2014 government has taken an initiative and attempt is made to be brought large scale retailers under normal sales tax regime. The smaller group of retailers is subject to advance sales tax payment from electric bills, likewise in certain items government is collecting advance extra sales tax @ 2 percent in lieu of their subsequent sales tax liability up to retail stage.
The retailers dealing in items falling under third schedule which are subject to sales tax payment at retail price should also be excluded from this scheme. However, FBR has failed to mention their status on these rules. Tax expert understand, application of standard rate of 17 percent sales tax on all such persons who were previously paying turnover sales tax @ 0.5 percent to 0.75 percent is asking too much from them. The sudden change is not easy to be acceptable and it is afraid such approach may results in hue and cry, which can again ruin the enforcement efforts of the government.
It is also observed that traders in Pakistan are willing to pay sales tax at source without observing complex tax compliance. Therefore it is observed that the FBR''s attempt to extend the list of items subject to un-adjustable extra sales tax @ 2 percent would be more fruitful or another relevant more viable option was gradual increase of turnover sales tax from 0.75 percent to the extent of 5 percent.
Though the government has introduced the new scheme, it would be an uphill task for them to ensure smooth compliance particularly from type (A) categories of retailers. According to the new rules, retailers shall provide seamless and real-time access of their Fiscal Electronic Cash Registers (FECRs) data to the Board and also allow on-site physical inspection as and when authorised by the Commissioner Inland Revenue having the jurisdiction.
The retailers falling in any of the following categories shall be required to be registered as retailer under the Sales Tax Act: A retailer operating as a unit of a national or international chain of stores; a retailer operating in an air-conditioned shopping mall, plaza or centre, excluding kiosks; a retailer who has a credit or debit card machine; a retailer whose cumulative electricity bill during the immediately preceding twelve consecutive months exceeds rupees six hundred thousand and a wholesaler-cum-retailer, engaged in bulk import and supply of consumer goods on wholesale basis to the retailers as well as on retail basis to the general body of the consumers. Provided that the rules of this chapter shall remain applicable for retailers, who do not get registered. The retailers operating as a unit or a franchise or any other arrangement of a national or multinational chain of stores, shall obtain a separate registration distinct from their principal.
The provisions of new rules would apply to all persons who make supplies from retail outlets to end consumers, including wholesalers-cum-retailers, whether registered or not, who shall be deemed to be retailers in respect of such supplies and also to persons making supplies of electricity to retailers. The provisions of this Chapter shall not be applicable to the registered persons ie vehicle dealers paying sales tax in the manner prescribed in Chapter VIII and registered retailers exclusively making supplies of goods specified in Chapter XIII, on which extra tax has already been paid in the manner prescribed therein.
As per rules, the retailers would be required to pay tax on standard rate. Retailers shall observe all the applicable provisions of the Act and rules made there under, including requirement to file monthly sales tax returns in the manner prescribed in Chapter II of the Sales Tax Rules, 2006. Provided that the retailers making supplies of finished goods to the five sectors specified in Notification No S.R.O. 1125(I)/2011, dated the 31st December, 2011 shall pay sales tax in respect of such supplies at the rates prescribed in the said Notification.
The rules said that other retailers shall pay sales tax through electricity bills. Retailers not falling in the categories specified shall be charged sales tax through their electricity bills by the persons making supplies of electricity. Every person making supplies of electricity shall charge and collect sales tax at the rates specified from every retailer having a commercial electricity connection. Provided that sales tax shall not be charged in cases where the person making supplies of electricity receives a written order from the Commissioner of Inland Revenue to the effect that the consumer is not engaged in any retail business; or consumer is already registered and paying sales tax through monthly returns. The amount of sales tax charged from retailers shall be shown separately in the electricity bill or invoice issued by the supplier of electric power. The supplier of electric power shall collect and pay the amount of sales tax from retailers in the laid down manner.