The Pakistan Retail Business Council (PRBC), which represents numerous well-known retail establishments across the country, has expressed serious concerns over the ongoing budget announcements and discussions between the Federal Government and various chambers and trade bodies regarding proposed increase in taxes and restrictions on retail timings.

In a letter addressed to various authorities, the PRBC highlighted the potential negative impact of such restrictions on the country’s economy, employment rates, and tax collection.

“The proposed increase of the fixed retail tax from 12% to 15% coupled with the suggested reduction in retail timings puts severe pressure on the organised retail sector which will result in mass store closures and a reduction in customers’ purchasing power, eventually driving many documented retailers out of business and forcing them to shut down,” it said in a statement.

“The documented and integrated retail sector already pays numerous taxes, duties and levies amounting to over a 40% difference over the undocumented non-tax paying sector. These include but are not limited to income tax, sales tax, customs duties, SESSI/PESSI, WPPF, WWF, salary tax and advertising tax to name a few.”

It said the huge difference scares people from entering the tax net and instead incentivises them to stay out of the net. “Ultimately it is counterproductive in broadening the tax net and does not lead to increased revenue collection.”

With retail accounting for a substantial 18% of Pakistan’s GDP, equivalent to $62 billion out of $360 billion, any reduction in demand for local textile products will have severe consequences.

“The proposed restriction to close retail establishments at 8 PM could lead to a 25% to 30% decline in revenue, resulting in a sales loss of $15 billion (3.5 trillion rupees).

“Moreover, the retail sector is a major employer, directly and indirectly providing jobs to over 10 million people, which accounts for 14% of the total workforce. Restricting operating hours would eventually leave 3 to 4 million people unemployed.”

Key concerns

The PRBC highlighted several key concerns that need to be addressed.

“Firstly, the government has not engaged with tax paying integrated stakeholders to seek a mutually agreeable way forward.

“Secondly, the decision to restrict retail timings disproportionately affects organized and tax-compliant retailers who have already faced challenges due to rising costs resulting from rupee devaluation and inflation.

“Thirdly, the hours 8pm onwards are crucial for sales as local consumers typically return home from work during this time and then take their families to visit retail stores as there is normally one shared vehicle in the house.

“Closing stores at 8 PM will negatively impact sales by at least 30% but at the same time maintain all costs, causing the documented sector irreparable losses.

“During global recessions, local retail plays a crucial role in supporting the textile and associated industries. Curtailing retail hours will further decrease demand and lead to more closures in the supply chain as well, affecting other sectors such as packaging and embellishments.”

Recommendations

The PRBC has put forward the following suggestions to the government. Firstly, the tax rate should remain at 12% as the undocumented retailers pay 0% in taxes and registered retail entities are already paying 12% in taxes.

“Increasing the tax rate to 15% will result in a further decrease in new retailers registering under the taxable category and moreover incentivize those who are already registered to become undocumented. The government should instead focus on broadening the tax net and improving enforcement against retailers evading taxes to increase its revenue.

“Furthermore, the council suggests allowing retailers to adopt a wheeling strategy based on off-site solar power generation, which would reduce costs and benefit both retailers and the government by switching to renewables and thereby lowering the oil import bill.

“Until the execution of this strategy, the PRBC recommends allowing integrated tax paying retailers to operate regular working hours without restrictions.

“This would encourage more retailers to integrate and register with the tax authorities in order to operate their stores.

“The utility companies should enforce closures on non-integrated and non-registered retailers to further push the non-tax paying retailers to get integrated and become fully tax compliant.

“Additionally, the government should encourage people to pay digitally through credit/debit cards which they are already doing in Islamabad in restaurants by giving a preferential tax rate of 5% instead of the standard tax rate. A similar mechanism should also be introduced for documenting the retail sector.”