FBR erupts: Retailers must accept card payments or face fines

In a bid to increase transparency and enforce compliance, the Federal Board of Revenue (FBR) has announced strict action against companies that refuse to accept credit or debit card payments. FBR chairman Amjed Zubair Tiwana stated that premises can be sealed based on three daily complaints or five weekly complaints from customers regarding card payment denials. This measure aims to shift Pakistan’s economy towards digital transactions and curb tax evasion.

Senator Sherry Rehman expressed grave concerns over the frequent failure of Point of Sale (POS) systems, stressing that even in countries like Britain, small purchases can be made using credit cards. She highlighted cases where high-value transactions were often declined on the pretext of non-functional machines.

Integrate and license POS systems

The FBR has directed 1,680 Tier-1 retailers to integrate with the POS system by May 31. The chairman admitted that vulnerabilities had been found in the cash register software in the past, which were exploited for tax fraud. To combat this, a new system involving third-party licensed software companies is being introduced to prevent such issues. Businesses that fail to provide receipts for five POS transactions in a week will face a fine of Rs500,000.

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The government aims to collect Rs70 billion through these measures in the coming fiscal year. Amendments in the Sales Tax Act now give the FBR the power to seal companies found with three uncertified electronic receipts per day. This initiative is part of broader efforts to digitalize the tax system and ensure full integration of the supply chain from manufacturers to retailers.

Consumer protection and compliance monitoring

The Senate Standing Committee on Finance and Taxation, chaired by Senator Saleem Mandviwala, has been actively reviewing these changes. Committee members suggested leniency for sales returns and suggested warnings before imposing sanctions. The FBR has also introduced a dashboard to monitor the operational status of POS machines in stores.

To address issues with poorly functioning cash register systems, the government will license companies responsible for providing reliable software solutions. Companies involved in tax fraud will be blacklisted, although they will retain the right to appeal to the chief commissioner. These steps are intended to improve compliance and protect consumer rights.

Sector-specific tax issues

Representatives of the Pakistan Software Association, All Pakistan Textile Mills Association (APTMA) and the Stationery Association have expressed concern over the high taxes. The standing committee has urged the FBR chairman to discuss these issues with industry representatives. In particular, the committee recommended exempting stationery from sales tax, considering the educational needs of Pakistan’s 22.5 million out-of-school children.

The FBR chairman hinted at the possibility of rolling back the proposal to impose a 10% sales tax on stationery and books. Instead, the sector could be granted tax-exempt status, although this would eliminate the right to tax refunds. These discussions underscore the balancing act between increasing revenues and supporting essential sectors.

New definitions and legal frameworks

A new definition of tax fraud has been introduced, which also includes intentional evasion and false documentation. These legal frameworks are part of the amended budget for 2024, with the aim of creating a transparent system and effectively combating tax fraud.

The Senate Committee has rejected an amendment regarding the Abandoned Properties Organization, stressing that the Finance Bill should focus solely on financial matters. Senator Anusha Rahman argued that public funds should be deposited in the national treasury, countering the administrator’s request to retain Rs14 billion for operational costs.

Enforce digital transactions

The committee also emphasized the importance of uninterrupted internet services to ensure the success of digital transactions. Senator Mandviwala noted that frequent internet shutdowns during political events hinder this progress.

Overall, these measures reflect a comprehensive strategy to enforce digital payments, improve tax compliance and support various sectors facing tax challenges. The FBR’s stringent measures mark a significant shift towards a more transparent and digitally integrated economy.