New retailers may not integrate with POS systems

LAHORE: The government action against organized retail sector  will discourage new retailers from integrating the POS systems and is likely to reverse the documentation of the retail sector and its value chain achieved so far.
Abolshion of the reduced sales tax for ‘Tier-1’ retailers of the organized retail sector under ongoing integration of their Point-of-Sale (PoS) will halt the process besides making the integrated retail businesses unviable. This will also adversely affect the government in the lower generation of taxes from the retail sector.

Chairman Chainstore Association of Pakistan (CAP) Tariq Mehboob in a letter to Advisor to the Prime Minister on Finance and Revenue Shaukat Tarin asked to intervene in the situation to avoid a big blow to the ongoing governmental drive for the documentation of the retail sector. “Since the beginning of the POS integration drive, CAP has performed a key role in ensuring effective and efficient integration of the POS of all Tier-1 Retailers with the system of the Federal Board of Revenue (FBR) as provided for under the Laws, Rules, and Regulations applicable. As in the past, to make this initiative a success, we are compelled to highlight the urgent concerns of Integrated Tier-1 Retailers regarding the possible removal of the reduced sales tax rate under the Eighth Schedule of the Sales Tax Act”, Tariq stated.

Chairman CAP requested Shaukat Tarin for urgent intervention and requested a meeting be held with the representative body so that the joint efforts of the Federal Government and the CAP for the greater good of the retail sector and the national economy are successful. Tariq elaborated that in the absence of a reduced sales tax rate of 10 percent instead of the standard GST rate of 17 percent, integrated retail businesses will no longer be able to compete with the majority of non-integrated retailers that can offer a much cheaper price to the end consumers by not charging sales tax. In addition, integrated retailers are also subject to an additional income tax burden of minimum tax on turnover and multiple withholding taxes.

It is important to mention here that the government has been working for a mini-budget to fulfill the IMF loan requirements. It is expected that the government will remove all reduced rates under the Eighth Schedule of the Sales Tax Act 1990 to bring those goods to the standard sales tax rate of 17 percent, through a Supplementary Finance Bill in the near future. In this regard, the reduced General Sales Tax rate of 10 percent applicable on the goods supplied by ‘retail outlets as are integrated with FBR’s computerized system for real-time reporting of sales is likely to be abolished.

The reduced sales tax rate, only recently changed from 12% to 10% through the Finance Act 2021, was introduced in 2019 to incentivize ‘Tier-1’ Retailers to integrate their Point-of-Sale (“PoS”) systems to document their sales and transactions across the value chain. The reduced rate has allowed the integrated retailers a partial level-playing field due to which an increasing number of Tier-1 retailers have been successfully integrated over the past two years, resulting in improved sales tax and income tax collection from the retail sector, as acknowledged by the Federal Board of Revenue.