MULTAN: The Federal Tax Ombudsman (FTO), Dr. Asif Mahmood Jah, has directed the Federal Board of Revenue (FBR) to revisit its sales tax registration criteria, aiming to remove discriminatory practices impacting retailers.
The directive was issued in response to a complaint from a business forum, which raised concerns about the classification of single-shop retailers under Tier-1 status, requiring them to integrate with FBR’s Point of Sale (POS) system. The complainant sought relief for smaller retailers, specifically those operating single outlets, from being classified under the same regulatory requirements as larger retailers.
As per SRO 608(1)/2014, retailers occupying 1,000 square feet or more fall under the Tier-1 category and are obligated to integrate their sales with the FBR POS system. However, the complainant argued that sales tax obligations should be based on turnover rather than shop area, questioning the rationale behind linking area size with tax registration requirements.
In response, the FBR clarified that sales tax is applied based on taxable supplies rather than area specifications. Tier-1 retailers, by default, pay sales tax under the standard tax regime. Despite this clarification, the Multan Chamber of Commerce and Industry (MCCI) and Anjuman-e-Tajran sided with the complainant, emphasizing that the current criteria create undue burdens on smaller businesses.
Dr. Jah observed that while the FBR’s goal is to document the economy, the existing policy is fostering a discriminatory environment. POS-integrated retailers are subject to stringent regulatory oversight, whereas non-integrated retailers operate in what the Ombudsman described as a “tax haven” environment, creating an uneven competitive landscape and promoting malpractice.
To address these issues, the FTO recommended that the FBR conduct comprehensive pre-budget consultations with stakeholders, including the Federation of Chambers of Commerce and Industry. These consultations should focus on resolving retailers’ concerns and promoting an equitable tax regime that encourages compliance without imposing undue constraints on small businesses.
The FBR has been directed to re-evaluate its sales tax registration criteria, with the ultimate aim of fostering a balanced tax system that supports economic growth and fair competition among all retailers.
