The new income tax law states that any corporation making a cumulative annual payment of more than Rs250,000 from a single account cannot be recognized as a cost in income tax filing unless it is done digitally. This has the potential to be a game-changer.
According to the FBR, out of an estimated 3.5-4 million dealers in the country, only 312,361 submitted tax returns in 2018-19. And retail and wholesale trade account for less than 5% of FBR direct taxes. The chasm is enormous, and the only way to close it is to use digital tools. The good news is that this strategy would not involve any harassment or bribery.
The industry standard is to have a mechanism for spinning open cheques. The tax authorities have no way of keeping track of payments because these cheques circulate as promissory notes with no actual flow of monies. For enhanced auditability, the FBR aims to eliminate the use of open cheques to match invoices to payments.
Despite this, the trader community has reacted negatively to the move. This discomfort stems from both genuine and illegitimate causes. Traders argue that they are not given enough time to prepare, which is a valid worry. Trainings and awareness seminars can help with this. But the real reason is that they are afraid of having to declare the invoices and therefore losing their ability to hide their sales. As a result, the tax liability would be based on real sales. Furthermore, some traders may refuse to pay their debts.