Govt accused of giving boost to undocumented retail sector thru budget

LAHORE: The budget 2023-24 has given more relaxation to the undocumented and unregistered retail sector and businesses, as the legislative changes in the Finance Bill has created more hurdles for the documented economy, placing already registered Tier-1 retailers at a further disadvantage.

These views were expressed by the Chainstore Association of Pakistan (CAP) Chairman, Tariq Mehboob, saying that the CAP, in its budget proposals, had proposed simplifying the Sales Tax and Income Tax regimes for retailers of all sizes.

The trade body’s proposals included removing the discriminatory classes of “Tier-1 Retailers” and “Other-than-Tier 1” Retailers, as it has badly impacted the viability of the documented and organized retail sector but the government did not implement this proposal to enhance tax net base as well as boost the economic growth.

Chairman CAP pointed out that the requirement of shops with an area of 1,000 square feet to electronically integrate their points-of-sale (cash registers) with the FBR was arbitrary in the first place, and the entire two-tier regime should be rationalized and compliance made much easier.

However, the removal of area-based criteria in the Finance Bill will allow thousands of unregistered retailers with an undocumented monthly turnover of millions of rupees to legally avoid registration.

Registered Tier-1 Retailers generate taxes to the extent of 20-25% of their gross turnover in the form of GST, Income tax, Withholding taxes, Provincial taxes, etc., across the value chain. The organized sector comprises barely 10% of the entire retail trade, while it accounts for more than 90% of all taxes collected from the sector, according to the trade body.

The Finance Bill also seeks to increase the reduced sales tax of 12% on locally manufactured textile and leather goods sold by integrated retailers to 15%. This increase by one-fourth will make products bought by customers even more expensive in a troubled economy impacted by high inflation and reduced purchasing power. In addition, an increase in withholding tax rates and their mismatch with minimum turnover tax rates will burden compliant businesses.

“In comparison, small and medium-sized retailers are able to sell their goods at much lower prices due to undocumented supplies, non-existent registration, and weak tax administration. Past attempts to collect substantial taxes from retailers through electric bills have also not yielded results.

In fact, Tier-1 retailers and even non-retailers are subject to extra taxation because most electric connections remain in the names of the owners of the property rented by the businesses. For the past two years, the entire focus of the tax administration has been on the already registered Tier-1 retailers, with notices and audits increasing by the day”, Tariq said.

CAP Vice Chairman Asad Shafi added, “the recent approval by the National Economic Council to restrict retail activities till 8 PM from 1st July 2023 could be the last nail in the coffin for many organized retailers because they comply with all government regulations. Major shopping malls and prominent markets will be forced to close extra early, and this will inevitably reduce retail store employees by half.

Meanwhile, smaller markets and neighborhood stores will find ways to stay open, as was experienced during repetitive lockdowns during the Covid-19 pandemic. We have proposed a balanced solution for retail to close at 10 PM instead of unlimited timings, which is already enforced in Lahore since last December.” he said.

Copyright Business Recorder, 2023