Government to Impose Turnover Tax on Traders

 
 
 
Government to impose turnover Tax on Traders

Turnover Tax (TOT) applies to traders, distributors, dealers, sole proprietors, partnerships, companies, or close corporations. TOT is a final tax calculated against a business turnover and is payable every month. Through such taxes, the government collects revenue to foster economic growth and development of the country.

Recently, in the budget 2022-23, the government has proposed new tax measures and increased the existing ones. The tax hike is part of the government’s efforts to improve the tax net in the country, encouraging more people to become tax filers. However, with the recent surge in local and international commodity prices, margins for traders, distributors and dealers have increased significantly; the government wants them to contribute to the taxation revenue.

Recently, the government has increased the turnover tax at the rate of 1.25% of turnover, which will be payable by all companies, and individuals having a turnover exceeding Rs10 million. Earlier, there were different turnover tax rates for several companies and organisations. For oil marketing companies, Pakistan International Airlines, and the Poultry industry, the turnover tax was 0.75% according to their annual turnover. For oil refineries and motorcycle dealers, it was 0.5%. In addition, 0.25% of turnover tax was payable by flour mills, distributors of pharmaceutical products, petrol agents and distributors, etc.

To increase tax collection, the government has revised the turnover tax rate and made it equal for all businesses and organisations to decrease the budget deficit gap. However, experts estimate that when the country is facing an economic downturn, a turnover tax of 1.25% on traders, distributors and dealers is unbearable as profit margins are barely 2% on market sales. Therefore, the proposed tax will discourage SMEs from registering under the sales tax regime.

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IMARAT Institute of Policy Studies

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