EDITORIAL: Fears of the business community that the Federal Board of Revenue (FBR) would ask them questions relating to their incomes in the past if they start integrating into the POS (point of sale) retailing system are surfacing and could throw a monkey wrench in the government’s larger goals. So far around 8,000 POS machines have been installed, but the tax authorities are facing a stiff resistance. The whole idea of integrating retailers through the digital system is to not only document the value chain for better tax assessment and collection but also to bring cash flow efficiency into the system. However, an abrupt change in the system can be tricky.
The FBR perhaps didn’t think through the process. The exuberance of the finance minister was probably divorced from ground realities. That is why in a recent meeting of FBR with the business community, the suggestion came from businesses to provide amnesty for TIER 1 retailers. To the surprise of a few, the proposal of providing an amnesty came from Overseas Investors Chamber of Commerce and Industry (OICCI). Forums like OICCI were always against previous amnesties. Now since the pushback is coming from their own distributors and retailers value chain, they are suggesting issuance of an amnesty scheme.
The system FBR is proposing should be future-looking and should aim to document the economy with willingness of the market players to have better efficacy. The fear factor is perhaps overplayed, and the businesses are shying away and discounting the possible prospective benefits fearing retrospective application of the law. That is why providing comfort to retailers and distributors with regard to past transactions would be a better strategy for documenting future transactions.
There are other operational and system issues. Unfortunately, however, looks at everything from the lens of revenues, whereas the risk of challenging and possibly derailing the system is being ignored. They must look at things holistically. For example, changing from payments cheques to digital payments by companies is going to choke the ongoing system of credit and assurances of payments through post-dated cheques. The FBR is acting as if it is oblivious of the banking system and the overall informal but legally valid and documented credit mechanisms prevalent in the markets that are imperative for maintenance of supply chains for almost all industry, trade and exporters. Despite an all-pervasive digital environment in the developed economies payments by companies through bank cheques remain legal, valid and fully admissible in their income tax codes as also in developing and underdeveloped countries. If payments through digital means are to be promoted then the solution does not lie in coercing companies to adopt the digital mode but in providing incentive to them to opt for the digital mode as has been done by reducing the rate of sales tax from 17 percent to 16.90 percent. The FBR should know better than blindly acting upon recommendations of a committee that suggested measures that exhibit lack of understanding of market transaction in vogue for decades and targets companies that are mostly compliant with the law to achieve their aim of acting against individuals and firms that have a significant number of undocumented players. If the FBR persists in its strategy to wring the necks of companies to nab such players it will be doing it at its own peril as it would only discourage corporatization and encourage people to conduct their business as non-corporate entities.
Another feature of the government’s strategy to increase tax collection and documentation in the economy that seems to have been relegated to the background is the FBR’s Gift Scheme through a lottery with the retailers’ invoice as the lottery ticket. This scheme, if packaged properly, has immense potential to increase sales tax collection. In fact, if it is crafted keeping in view the market dynamics and our peoples’ psyche, combined with ingenuous publicity and advertising campaigns it can prove to be a game changer. The decision to finance this scheme through imposition of a service charge of rupee one on each invoice to avoid a burden on the budget, seems to have killed this before its inception due to the legal issues and court decisions in the field. If the FBR can offer a reduction of 0.1 percent in sales tax on payments through digital mode then why a similar concession cannot be offered to participating retailers in the gift scheme and the rupee per invoice collected from them to finance the gift scheme?
Copyright Business Recorder, 2021
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