The Federal Board of Revenue (FBR) on Tuesday decided to hold 60% of the refund claims to those top tier retailers who would still deny to link and integrate their sales invoicing systems and counters with the tax systems of FBR to avoid to show their actual sales for Income and sales tax purpose.

The decision to deny 60% input to tier-I retailers marks a clear shift in the FBR strategy after the Federal Board of Revenue struggled hard to increase point of sales targets. Through the Finance Act 2019, the government had decided that those tier-I retailers that would not integrate their sales invoicing system with the FBR’s online system would be penalised by holding their refunds of up to 15% of their claims. This ratio has now been increased to 60% through Finance Act 2021.

The FBR on Tuesday issued a Sales Tax General Order to give effect to the new punitive clause of the law. The FBR said that it was adopting a system-based approach where all identified tier-I retailers will be placed on the FBR’s website by the fifth of every month, allowing them to integrate with the FBR system in the next five days.

In case a notified FBR tier-I retailer claims that it is not a tier-I retailer as per the definition provided under the law and therefore not liable to integrate with the FBR system, they may apply for exclusion from the list of tier-1 retailers in the next 10 days.

The FBR said that upon filing of the sales tax return for the month of July by all notified tier-I retailers that are not integrated, the input tax claimed would be disallowed without any further notice or proceedings, creating tax demand by the same amount. Shaukat Tarin has said that they have target to connect 500,000 point of sales with the FBR system and collect Rs100 billion taxes from the retailers in two years.

As per current figures the FBR had registered 84 more retailers, taking total number of point of sales that are integrated with the FBR’s invoicing system to 11,514. It is a little progress towards achieving the goal of 500,000. At this stage such action is necessary to bound the retailers to get their registrations.

But facts are not satisfactory because against the 11,514 machines, the actual number of retailers who are integrated with the FBR are 1,016, including 660 tier-I retailers. In addition to that, there were 200 textile and leather stores chains and 157 restaurants. Nearly 60% integrated persons and entities are the tier-I retailers.

According to FBR there was no huge tax potential from the drive and the FBR can only do their best to collect additional Rs15 billion from the POS initiative in the current financial year as compare to budgeted figure of Rs50 billion. Finance Minister, Shaukat Tarin believes that the Rs100 billion and 500,000 POS target is achievable.

At the end of the last financial year about 11,000 point of sales (POS) had been registered year that paid Rs14 billion in taxes, which was actually Rs500 million less than the last year.

Tier 1 Retailers | Invoicing System | Integration with Tax system | FBR | Federal Board of Revenue | List of Tier 1 Retailers | Tax Refunds Claims | IRS | Income Tax Returns |