Daily Times

Chairman of the Chainstore Association of Pakistan (CAP) Rana Tariq Mehboob has urged the government to maintain the 15% GST rate for Integrated Tier-1 Retailers by retaining S. No. 66 of the Eight Schedule of the Sales Tax Act 1990, which is proposed to be omitted in the Finance Bill 2024, as the FBR-POS integration has been instrumental in digitalizing taxation efforts.

In a press release, CAP emphasized that a strategic combination of sequential measures, implemented in consultation with progressive retailers, will promote economic growth and sustainable tax compliance across the entire retail sector.

Rana Tariq Mehboob stated the CAP represents Tier-1 Retailers integrated with the FBR-POS system. The organized retail sector significantly contributes to Pakistan’s formal economy, directly employing over 2,000,000 people and indirectly supporting many more through shopping malls, manufacturers, service providers, and the cottage industry amongst over 50 other sectors.

Despite ongoing attempts to rationalize the taxation of the retail sector, the proposed tax reforms have led to the closure of several integrated Tier-1 retailers and the premature reduction of the physical retail network of many others over the past two years, Rana Tariq furthered.

This has resulted in shrinking employment within the formal sector and stagnation of domestic investment in branded retail. CAP firmly believes that thorough digitalization can address the elusive taxation reforms of the retail sector.

The press release noted that when FBR-POS integration was introduced in 2019, the GST rate for locally produced textile and leather products was 9%. This rate has since been hiked to 15% without significant broadening of the tax base, making domestic Tier-1 retailers uncompetitive and hampering digitalization efforts.

Although a maximum GST rate of 12% should be restored, maintaining the current GST rate at 15% will partially incentivize customers of Tier-1 retailers therefore allowing some semblance of competitiveness for the formal sector. The Finance Bill 2024’s proposed increase to 18% will further disadvantage tax-compliant retailers and will reverse all gains towards digitalisation of the retail sector over the past 5 years.

Integrated retailers currently generate 20-25% of their turnover through various tax regimes, while undocumented retailers are increasing due to avoidance of taxes, generating negligible taxes relative to their turnover and avoiding compliance and audits.

The FBR-POS integration regime has faced many recent setbacks, including the easing of integration criteria in the Finance Act 2023 and the discontinuation of the POS prize scheme for consumers since November 2022, despite ongoing charges. Tax compliant retailers are also concerned about the use of the collected funds, which are deposited into the IRS COMMON POOL account monthly.

Previously, consumers were motivated by cash prize opportunities to purchase from integrated Tier-1 retailers and verify sales invoices digitally, promoting compliance and crowd-sourced tax enforcement.

The CAP leadership emphasized that special concession for FBR-POS integrated taxpayers should be announced to encourage more retailers to integrate. Additionally, issuing notices without adverse information should be discouraged for integrated Tier-1 retailers.