Recently, the incumbent government imposed a fixed tax rate on small traders and retailers. As per the decision, the traders and retailers were mandated to pay a tax rate between Rs3,000 and Rs10,000 (small retailers pay Rs3,000 and Rs10,000 for large retailers). According to government officials, the main objective of this decision was to bring 300,000 of the 900,000 retail shops under the tax net. Per the decision, retailers trading in gold whose shops are 300 sq feet or less were required to pay a fixed income and sales tax of Rs40,000. In addition, for the big stores, 17% tax was fixed. Also, a new scheme was introduced under which all the taxes paid by these people would be linked to electricity bills. Furthermore, a similar tax was introduced for real estate, builders and car dealers.
However, after the announcement of the fixed tax imposition, traders started protesting and decided to strike for an indefinite period if the government didn’t withdraw this decision. According to their Union Chairman, traders are already suffering very badly due to the increasing electricity and gas prices and the continuous rupee depreciation against the dollar. In this situation, imposing further sales tax on electricity bills will hurt the business community.
Considering the situation of traders and retailers, the government has directed the Federal Board of Revenue (FBR) to immediately suspend the collection of fixed sales tax through electricity bills from small traders and retailers and devise a new roadmap in consultation with traders for the purpose. Also, the government has directed all the concerned authorities to take all the possible measures for the financial security of the poor and finalise an effective mechanism to reduce electricity rates to provide relief to people. However, after abolishing this tax, the government will have to find other avenues for tax collection to achieve the envisaged budget deficit and primary balance target.
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