The Federal Board of Revenue (FBR) is exploring possibilities to introduce "small business special tax regime'' for the small retailers and shopkeepers having annual turnover below the registration threshold of Rs 5 million under the new Value Added Tax (VAT) law.
Sources told Business Recorder here on Friday that the FBR is analysing some kind of special scheme for the small businessmen which should not create distortions in the VAT. However, a simple scheme for the small businessmen is under consideration under the new VAT regime.
The major issue is relating to the mechanism for determining the turnover of the persons operating below the existing registration threshold of Rs 5 million. How the turnover of a person would be determined and what should be the parameters to determine such turnover? Even if a simplified scheme has been introduced for those operating out of the VAT, how the FBR would practically determine the turnover of any person?
The key issue of determining actual turnover needs to be resolved before implementation of new VAT law in Pakistan. All over the world, turnover tax schemes are applicable for small businessmen and traders who are operating below the stranded VAT registration threshold. Presently, sales tax levied on the retailers in Pakistan is actually a turnover tax.
If the FBR exempts small businessmen, retailers and shopkeepers from the VAT regime, there is a strong possibility that big businessmen would spilt their businesses to operate below the sales tax registration threshold. The FBR has to take some precautionary measures to handle situations where big businesses were being spilt to avoid registration threshold under new VAT law.
Sources said that whatever is the registration threshold, the issue is to determine the accurate turnover of a retailer, shopkeeper or any other category of business. Without effective mechanism to determine turnover, even proposed "small business special tax regime' could be a total failure. There is no sector of economic activity where co-operation between traders and the VAT authorities is more desirable than at the retail sale.