The retail sector advocates a balanced tax policy

ISLAMABAD:

In a key meeting with the Senate Finance Committee, representatives of the Pakistan Retail Business Council (PRBC) presented their point of view against the proposed increase in sales tax from 15% to 18% for point-of-sale (POS) connected retailers.

The allegation was so convincing that it not only gained the consensus of all senators, but also left the representatives of the Federal Board of Revenue (FBR) without a substantive counterargument.

The PRBC highlighted a critical flaw in the current tax structure, with only 5% of the retail sector being registered and compliant, while a staggering 95% remained outside the tax net, making no contribution to the exchequer.

This discrepancy paints a bleak picture of an overburdened compliance sector that already accounts for almost 57% of various taxes and contributions, including income tax of 29%, super tax of 10%, dividend tax of 15%, Employees’ Welfare Fund , Employee Profit Sharing Fund and more.

With the proposed sales tax increase, their total tax burden will increase to an unsustainable 60%. This would force consumers to shop in the undocumented and tax-compliant sector as inflation has been high for several years and disposable income has shrunk significantly, the retail council said. “This will literally prove to be the straw that breaks the camel’s back.”

Statistics shared by PRBC highlight the potential negative impact of the tax increase, noting that when sales tax was previously raised to 15%, most compliant retailers saw zero or even negative growth.

Historical data suggests that greater emphasis should be placed on enforcement and widening the tax net, focusing on more retailers from the undocumented, non-tax-paying sector, he stressed.

The retail council’s argument went beyond simple opposition to higher taxes, as it also proposed solutions to broader economic health by arguing for a broadening of the tax base rather than increasing the tax rate on taxes already covered by the system.

They indicated that solid growth rates of 25-30% have been maintained with lower sales tax of 6% to 9%. “Figures like these not only illustrate the stifling impact of higher taxes on economic growth, but also highlight the potential to raise revenues through more inclusive and growth-friendly policies.”