Cottage industry: Threshold for compulsorily registered persons raised to Rs10m

ISLAMABAD: The federal government has enhanced the threshold for the compulsorily registered persons within cottage industry from a paltry Rs3 million to a significant level of Rs10 million.

Explaining the sales tax budgetary measure introduced through the Finance Bill (2021), a leading Karachi-based sales tax expert, Arshad Shehzad, informed the threshold limit of cottage industry is proposed to be increased from three million to Rs10 million.

He said considering the inflation and devaluation of the rupee during the last couple of years, the threshold of three million rupees was practically nothing and resultantly all sort of small industries was also liable to get registered.

The government extending one of the relief to the small industrial sector has increased the turnover limit for exemption from sales tax registration up to turnover of Rs10 million.

The threshold of shop area in case of furniture outlet/showrooms is proposed to be increased from 1,000 square feet to 2,000 square feet for inclusion in tier-1 retailer.

Now the retailers of furniture are having shop up to 2,000 square feet are not required to be registered under Tier-1 retailer to pay the standard rate of 17 percent sales tax and incorporate point of sales.

The measure may give some sort of relief to small retailers-cum-traders of the furniture industry.

He, however, suggests a similar sort of relief may also be given to other small retailers falling under the Tier-1 category.

According to Shehzad, there is a huge disparity between Tier-1 and other than Tier-1 retailers.

The tier-1 retailer is liable to pay the standard rate of 17 percent and also liable to install point of sales to record their turnover on a real-time basis, on the other hand, the non-tier-1 retailer is not liable to charge sales tax at all rather simply need to pay sales tax on its electricity bill at a very minimum level.

The government need to look into this disparity and needs to reduce the difference in between the two segments of the one sector to provide a level playing field to all the stakeholders, Shehzad emphasised.

The public limited companies are proposed to be excluded from the purview of Section 8B.

Explaining the measure, Shehzad informed, the sales taxpayers are required to make 10 percent minimum payment under Section 8-B of the STA 1990, whether in actuality there comes any net payment or not.

In the prevailing, Covid-19 and lockdowns, sales of the number of industries were reduced significantly and stocks are piled up.

The net minimum 10 percent payment in this situation was a real challenge and therefore, different sectors were asking for a relaxation of minimum payment on this account.

The government has extended this exclusion to public limited listed companies.

In Shehzad's opinion, though it is a positive move, the government needs to deal with all the sectors at par.

Extending relief to one segment and leaving the other is not an appropriate move.

He suggests in the prevailing situation of lockdowns one-time exclusion should be given across the board.

Even otherwise, this is the measure that only improves the cash flow of the taxpayers, since this measure does not have any revenue impact.

The government has not properly been guided by the tax machinery in his opinion.

The concept of Common Identifier Number is proposed to be introduced.

In case of an individual registered person or required to be a registered person CNIC shall be a common identifier number in addition to the STRN.

The provision is brought to utilise CNIC-based data for broadening the tax net.

The amendment seems to be a step in the right direction.

The tax machinery however also needs to improve their skills to use them all the database in a positive and constructive manner, Shehzad concluded.

Copyright Business Recorder, 2021