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ISLAMABAD: The Federal Tax Ombudsman (FTO) has received over 100 individual complaints of the newly integrated Tier-1 retailers, who were not required to be registered, but declared as big retailers by the Federal Board of Revenue (FBR).

This has been revealed in a study report prepared by FTO senior Advisor Sarwat Tahira Habib on the integration of Tier-1 retailers under the Sales Tax Act, 1990.

The said own-motion case was taken up by the Federal Tax Ombudsman, which revealed that the highest number of complaints received from taxpayers based in Lahore (50 per cent) then from Islamabad (20 per cent), and Karachi (18 per cent).

The FTO has unearthed serious issues in the FBR Point of Sale system of integration of retailers including the complexity of legal provisions for POS integration are glitches/delays in the automated system of the FBR.

While introducing the scheme in July-2021, the FBR stated that it intends to integrate 50,000 to 60,000 retailers in the financial year so far 7,000 to 8,000 retailers have been linked with the system, the FTO report said.

The FTO study report disclosed, “the integration process is fraught with procedural delays and systemic limitations. It is yet to be analyzed whether the POS scheme has made a sizeable contribution to raising the revenue and how successful is the process of monitoring the taxable activities through point of sale integration. It is recommended that while carrying on with the aim of more integration, FBR should ensure a taxpayer-friendly Automated System removing the flaws pointed out in the study, and doing away with the discretion by more and speedy automation systemic improvement.”

The special study revealed that the FBR’s field formations are compulsorily registering the persons/shops that do not fall in any category mentioned and after registering them compulsorily, they issue demand notices and pass order imposing penalties ,etc, on account of non filing. When the position was confronted with field formations, they simply stated that FBR has been sending them lists of persons/businesses on the basis of income declared by them in their income tax returns. In pursuance of the lists, they issue notices to the persons and on no response, they make them compulsorily registered under the sales tax law. It is therefore, recommended that in case FBR intends to enlarge its scope, it should make rules under Clause F of Section 2(43A) specifying persons or class of persons required to be registered other than the categories mentioned at Clause A to E of Section 2 (43A) ibid.

It was also brought to the notice of the FTO that bracketing certain retailers in Tier-1 category while allowing other categories of retailers out of the ambit of POS integration, would create an extremely disabling/discriminatory environment, discouraging retailers to integrate with the POS System.

It was also reported that buyers are preferring to visit non-integrated outlets to avoid paying 17 per cent sales tax hence, effecting the turnover volume of the integrated retailers.

There were problems being faced by the taxpayers due to the companies operating Point of Sales who were new to the business.

It was proposed by the retailer associations that the electricity bill limitation of Rs1.2 million should be re-assessed afresh keeping in view of the current rates of the electricity bill.

Anjuman-e-Tajran in big cities KCCI and LCCI further asserted that government should focus on broad basing of tax revenue in other potential areas of the economy instead of only squeezing retail business.

There were complaints for the delay in exclusion by the retailers who do not fall under any single category in the Section 2(43)A to F. Despite claims and application by the notified Tier-1 Retailer that they are not liable to be notified, proceedings were initiated by the FBR against the taxpayers while the request for issuance of exclusion certificate remained pending before the department for months.

The exclusion certificate request was filed to the FBR Islamabad for the redressal of the complainant’s grievance, but no action was taken over exclusion, to save the Complainant from disallowance of 60 per cent input of Sales Tax and to enable it to file his Sales Tax Return within time which had already been delayed due to pending application.

The penal action against taxpayers who had already removed the POS machines. In many cases, the POS machine was admittedly installed by a retailer but removed.

However, department did not bother to conduct on-spot enquiry or to verify from the relevant bank regarding the current status of installation of POS machine at the store and without affording an opportunity of explanation, registered the entities when POS had already been removed and, further, despite the fact that department had been duly apprised about the overall status of Complainants, exclusion certificates were delayed for weeks. due to systemic issues between the RTOs and the FBR.

The retailers were registered compulsorily due to the proximity of the businessman’s name being similar to a famous chain store and the request for de-notifying was not accepted until redressal was vehemently supported by the office of the FTO.

The small shop’s in were malls registered arbitrarily, as the law did not exclude even low turnover shops from inclusion in the lists under the STGO’s, as they were situated in a mall.

Many complainants had no retail outlet and all the sales were made to registered persons only on a wholesale basis, therefore, requirements, mentioned in Rule150ZEA of Sales Tax Rules, 2006, were not attracted.

However, the department passed impugned penalty orders instead of deciding on exclusion application, imposing penalties without establishing first whether complainant’s business was liable to be registered under the said system or not. Retailers integrated with the FBR system, were unable to file the correct tax return, due to such departmental proceedings.

The FBR should address the issue of input adjustment after due correction of departmental data and record, and resolve the systemic issues between the RTO’s and Chief (POS) FBR, resulting in inordinate delays, to enable the taxpayers to claim admissible input tax credit in their monthly sales tax returns. Amendment may be made in Sales Tax Act, 1990 for automatic allowance of refund application in case of no correspondence by the officer concerned within the stipulated period of 60 days.

The FBR may layout an online procedure for issuing exclusion certificates in five days’ time to the retailers who claim that they have no POS System installed. Due verification of installation of POS system at the premises may be done, (as it is also a pre-requisite for sales tax registration) and after providing the due opportunity of being heard to the complainant, decisions may be made. So that delay and corrupt practices are tackled through this automated procedure, the FTO special study added.

Copyright Business Recorder, 2022

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