Point of sales systems: Businesspeople seek 'amnesty scheme' for Tier-1 retailers

KARACHI: The business community has urged the Federal Board of Revenue (FBR) to introduce an amnesty scheme for Tier-1 retailers. The request was made at a meeting held between the representatives of the Overseas Investors Chamber of Commerce and Industry (OICCI) and senior officers of the Large Taxpayers Office (LTO) at the OICCI office here on Tuesday.

The FBR, which has a target to install 80000 Point of Sale (POS) systems at retail outlets across the country by the end of the current financial year, has so far succeeded to install not more than 8000 POS systems in the country. For this purpose, the FBR officials are conducting meetings with the representatives of different associations, chambers, etc., in order to resolve their grievances regarding the POS system.

The OICCI representatives during the meeting urged the FBR officials to introduce an amnesty scheme and no question would be asked regarding purchases from Tier-1 retailers after the integration of the POS system.

They said that the FBR instead of squeezing the neck of already existing taxpayers should utilize its third party information for broadening of tax base and stressed upon stern crackdown against smuggled goods. They said that if the supply of smuggled goods got market access uninterruptedly, the Tier-1 retailers would face serious financial shocks. Therefore, the FBR should take confidence-building measures before the implementation of the POS system, which should be launched on a pilot basis before being rolled out across the country.

Furthermore, they said that the efforts for the integration of POS systems with retail outlets were unlikely to yield fruits in Sindh after the Sindh High Court (SHC) judgment that declared the distribution of taxable goods as service & exposed to Sindh Sales Tax (SST).

They said that the business community had suspicions on the motives of the POS system; hence, confidence-building measures must be taken through social media, print media, etc.

They said that members of OICCI were genuine taxpayers and their distributors were registered with the FBR and added that initially POS must be enforced with large retailers.

Furthermore, OICCI representatives said that there should be three months turnover tax fixed for them instead of monthly Sales Tax Return as a stop-gap arrangement to convince them on POS integration.

Responding to the queries of the OICCI representatives, the LTO officers informed that the FBR was planning to challenge the SHC decision in the apex court; adding that Tier-1 retailers, who installed POS system, would get five percent tax incentive along with input tax adjustment.

The LTO officers who attended the meeting were Anees Memon Deputy Commissioner HQs, Nisar Burki, Additional Commissioner Inland Revenue, Khan Muhammad DC Inland Revenue, and Khush Ahmed Din Senior Auditor.

It may be noted that the SHC in a recent judgment held that distribution arrangement, whereby distributors buy taxable goods from the manufacturers for onward supply down the supply chain against payment of sales tax under Sales Tax Act 1990 (the Act), in fact, depict rendering of taxable services under Sindh Sales Tax on Services Act 2011 (SSTSA) if such manufacturers retain certain quality or other controls over the supply chain down the line. On this basis, the SHC has held that such distributors are liable to pay Sindh Sales Tax (SST).

By disposing of the reference application, the SHC has held that distribution arrangement whereby the manufacturer retains certain controls over the supply chain down the line involves an element of services which is classified as 'supply chain management services' and exposed to SST even though respective goods have suffered sales tax incidence under the Act.

Consequent to the above judgment, distributors, which are currently registered with the FBR, have become exposed to SST, apparently on margin being offered to them by manufacturers even though such margin is also included in their value of supply offered for federal sales tax.

Meanwhile, Moore Shekha Mufti, Chartered Accountants in its letter addressed to the chairman FBR contended that the said judgment was alarming for the distributors who were already discharging their sales tax liability to the FBR.

The letter further said that distributors would be under great distress if they were asked to pay both federal and provincial sales taxes. The firm has counted a number of issues like treatment of a particular transaction both as a 'service' and 'goods', double taxation on a single transaction under federal and provincial law, the value of supply/service, the tax treatment in case of cross border purchase and supply of goods among provinces, an extension of judgment to wholesale/retail sectors, etc. as the issues which have not been addressed or discussed in the subject judgment of SHC.

The letter urged the FBR to issue a clarification to explain its viewpoint on SHC's ruling and ensure that no double tax may be imposed on distributors if they proceed to implement the judgment.

Copyright Business Recorder, 2021