DNA
LAHORE, MAY 3: The Chain Store Association of Pakistan (CAP), in a bid to expedite tax reforms whilst ensuring a more conducive environment for compliant businesses, has urged the authorities to prioritize an accelerated adoption of digital payments in the retail sector to improve documentation and tax generation.
CAP Chairman Rana Tariq Mehboob and Co-founder Asfandyar Farrukh, in a press release issued today, expressed concern over the slow progress in documenting the retail trade, due to stagnation of both the FBR-POS integration of Tier-1 businesses and ‘Tajir Dost’ drive to register smaller retailers. This lack of progress is primarily due to lack of sustained consultation with the private sector, no continuity of policies, inconsistency in their implementation and increasingly complex procedures. A clear 5-year roadmap is the need of the hour instead of ad-hoc measures.
The CAP representatives highlighted the potential benefits of embracing digital payments, including enhanced transparency, reduced cash handling costs/risks, and simplified tax compliance.
As cash-oriented sectors are digitalized and documented businesses are allowed to grow without a heavy tax burden, their contribution to taxes will surely increase as a by-product of the transitional growth. The retail trade body has emphasized the importance of implementing a comprehensive policy framework to promote digital payments across all sectors, especially retail, through tax incentives and associated measures.
They pointed to successful models in parts of the country, such as those observed in the restaurant industry in Punjab and ICT. The reduced sales tax rate of 5 percent, instead of 16 and 18 percent respectively, has incentivized customers to pay digitally due to the noticeable incentive. This has multiplied the quantum of documented transactions and resultant government revenues.
Farrukh underscored the need to implement this model in the retail sector to incentivize digital payments for promotion of a quicker transition to a cashless economy. He proposed that GST should be similarly slashed for all retail transactions made through any digital payment method, to encourage faster adoption among businesses and consumers alike.
Although payments via debit and credit cards have shown substantial growth, the RAAST person-to-merchant payment system being rolled out by State Bank of Pakistan and private banks/fintechs will be a game-changer. Through RAAST, anyone with Jazzcash, Easypaisa or any mobile banking app is able to make a payment to a retailer of any size without any added cost, he pointed out.
The strategy of raising revenues by imposing a high tax rate on a low base has failed because it is contrary to economic principles and ground realities. Speedy adoption of digital payments at a much lower tax rate will aid in the documentation of business turnovers leading to an improved generation in the quantum of sales tax by broadening the base in addition to enhanced income tax collection over time, added Mehboob.
The share of digital payments can be gradually brought up to 50% of the retail trade’s contribution to the annual GDP, estimated to be upwards of Rs. 12 trillion. Currently, an estimated 90% of the retail trade is undocumented and undertaxed. Whereas, based on a reduced GST rate of 5% on only Rs. 2 trillion, Rs. 100 billion can be generated in indirect taxes and an additional sum in direct taxes, which is more than is currently collected.
In light of these recommendations, CAP has urged policymakers to take quick and decisive action through a collaborative approach with key players of the ecosystem. They called for a concerted effort to accelerate the adoption of technology, streamline tax procedures, and enact policies that fast-track the use of digital payment solutions to achieve the success that has so far remained elusive.
, in a bid to expedite tax reforms whilst ensuring a more conducive environment){kind=link}