The federal government has released a draft of a voluntary fixed tax scheme to make small businesses part of the formal economy and make the tax system relatively simple. Under the proposed scheme, eligible shopkeepers will be able to pay only one percent tax on their annual turnover, but it will be mandatory to deposit at least Rs 25,000 in annual tax. According to government estimates, if a large number of shopkeepers join this scheme, the national exchequer can earn more than Rs 50 billion annually.
The draft released by the Federal Board of Revenue (FBR) states that this scheme will be completely voluntary. Small business owners will be able to opt for this special tax regime as per their convenience or will be able to maintain the method of filing regular income tax returns under the existing laws. According to officials, the main objective of this move is to simplify tax laws and bring into the tax net even such businessmen who have been avoiding registration due to complex procedures.
Under the proposed policy, only those shopkeepers who own a single business unit and fulfil the prescribed conditions will be able to benefit from this facility. Owners of more than one shop, tier-one retailers, jewellers and people providing professional services have been kept out of this scheme so that this facility is limited to small businesses only.
A prominent feature of the scheme is the issuance of special green plates for registered shopkeepers. According to the FBR, inland revenue officers will not enter shops holding green plates unnecessarily during routine tax inspections. In addition, such shopkeepers will also be exempted from the requirement of installing a point-of-sale (POS) machine and from traditional tax audits, which is expected to significantly reduce administrative complexity for the business community.
Special attention has also been paid to simplifying the registration process. Eligible shopkeepers will be able to register through the FBR’s IRIS portal, mobile application or the nearest tax office. For this purpose, a simple one-page tax return form has been introduced in which basic information, including the name of the business, address, national identity card number, nature of the business, annual sales, purchases and expenses, will have to be provided.
The FBR has also clarified that registered shopkeepers will also have to submit details of their net profit, other sources of income, taxes paid in advance, immovable property, bank balance, available cash and other assets so that financial records are kept transparent and complete.
Tax officials say that the scheme is aimed at facilitating the business community, but its misuse will not be tolerated. If a person buys unusual assets while showing less business, hides financial information or makes false statements to avoid tax, then audit, investigation and legal action can be taken against him.
Meanwhile, the FBR has sought suggestions and objections from the business community, tax experts, chambers of commerce and other relevant circles within seven days on the proposed scheme. After the consultation process is completed, the final rules and regulations will be issued after reviewing the suggestions, after which the path for formal implementation of the scheme will be paved.
According to economic experts, if this scheme is implemented effectively and succeeds in gaining the trust of traders, it will not only increase the number of taxpayers but can also help in gradually making the undocumented economy a part of the formal system. On the other hand, business organisations are likely to present their views on the proposed conditions and eligibility criteria after detailed consultation.