Boy the genius, I know i am being charged. I also know that i am bearing more burnt because tax thieves are walking free, now when I see those who were living tax free are being cornered then I surely feel happy because if tax is not retrieved from them then ultimately I have to pay share of these mofos in form of more indirect taxes.
- Been following your posts since yesterday. It's obvious that the perception of the salaried/students regarding the normal business folk is that of a Seith Sahib who earns (has profits) in upwards of 100,000 a day. Yes there is a class of business folk out there that can manage to earn such profits, however the number of such businesses is almost the same as the number of salaried class earning 10,00,000 a month. So judging every business owner in Pakistan by the "Seith Sahib Standard" is just plain ridiculous.
- Secondly, the problem is not of paying the taxes. The problem is of the tax system being complex to a point where it makes your head spin. The majority of the business class is illiterate. These are people who basically inherited their businesses from their fathers, and have spend their lives on their shops since the time they passed 7th class. In Pakistan we have the traditional distribution system for products, so you have following;
The producer ----> The Distributor ----> The Whole seller ----> The Retailer ----> The Consumer
Just look at the most simplest GST calculation possible of a product costing Rs. 90 to the producer, with 10% profit margins at every intermediary and 17% GST. To simplify it further the withholding tax which would be charged on every intermediary wasn't even considered. I again stress, that this is probably the SIMPLEST GST calculation that there could be.
Producer:-
Produces something at 90, and wants to sale it at Rs. 100. A distributor approaches and agrees to buy at Rs. 100, with the GST in play the distributor has to pay Rs. 117 and the producer deposits Rs. 17 to the Government. Distributor:-
Input tax: 17% at 100 = 17
Cost of the product: 117 (incl tax)
Profit to be charged at the product: 10% = 11.7
Sale Price: 128.7
Output tax: 17% at 128.7 = 21.879
Amount being charged from the wholeseller: 150.579
Tax due: Output tax – Input tax = 21.879-17 = 4.879 to be deposited by the distributor. The rest will be transferred to the next intermediary.
Wholeseller :-
Input Tax: 17% at 128.79 = 21.879
Cost of the product: 150.579 (incl tax)
Profit to be charged at the product: 10% = 15.05
Sale Price: 165.629
Output Tax: 17% at 165.629 = 28.15
Amount being charged from the retailer: 193.779
Tax due: Output tax – Input Tax: = 28.15-21.879 = 6.27 to be deposited by the wholeseller.
The rest will be transferred to the next intermediary.
Retailer:-
Input Tax: 17% at 165.629 = 28.15
Cost of the product: 193.779 (incl tax)
Profit to be charged at the product: 10% = 19.3779
Sale Price: 213.15
Output Tax: 17% at 213.15 = 36.2
Tax due: Output tax – Input tax = 36.2-28.15 = 8.08 to be deposited by the retailer.
The rest will be transferred to the next intermediary.
COST TO THE CONSUMERS: 249.35
Conclusion: A product that costed Rs. 90 to the producer will cost Rs. 250 to the consumer. Now, include the with holding tax at every intermediary, and multiply these calculations with the numbers of items each shop has, something that even karyana stores have in the 100's and you can see why the traders protest that the current system is too complex.
-Thirdly, for the ones that are saying that "Ohh these tax thieves just have to pass on the tax on to the consumer. It's just so simple". For the answer to that argument you would have to look inward, and ask aren't we the ones that go out and throw our weight around " Nahi jee yei 300 ki chez nahi hai, mei 150 sai aik rupiya ziada nahi doun ga iska". I just showed you how a product starting at Rs. 90 would cost you, the consumer Rs. 250 by the time it reaches you. With increased prices the demands of goods will fall, and then us consumers will be the same ones that will call the businesses thieves and loteras.
-Fourthly, please do mention where in the world do you need a valid CNIC to shop? I've no arguments in government tracking the purchases so that it can identify a money trail. But why does a business have to be the one documenting the consumer purchases, maintaining a whole file worth of CNIC copies across a whole financial year and risking persecution if any copy goes missing etc. A simpler way is to track credit/debit card purchases where a business has to do nothing additional and the government can still get a money trail.
-Fifthly, majority of the businesses operating in Pakistan are SME's. These are businesses with very limited human resource and investment. They are literally 90% of the total businesses operating in Pakistan, employing nearly 80% of the non agricultural labor force of Pakistan. The measures the govt wants implemented represents an increase in cost of doing business, and the way that businesses shed such costs is by cutting jobs. So your basically looking at a hike in unemployment from a source that employs nearly 80% of the non-agricultural labor force.
-Lastly, for people saying let's burn a couple markets if they don't open or auction their shops off, suggestions that I've been reading since yesterday. Here is a question for my PTI friends (since I also voted PTI this past election) ... Isn't registering a peaceful protest by shutting down one's own business, come under the umbrella of freedom of speech? You might not remember this or might not like to remember this ... but that doesn't mean it didn't happen...
- Been following your posts since yesterday. It's obvious that the perception of the salaried/students regarding the normal business folk is that of a Seith Sahib who earns (has profits) in upwards of 100,000 a day. Yes there is a class of business folk out there that can manage to earn such profits, however the number of such businesses is almost the same as the number of salaried class earning 10,00,000 a month. So judging every business owner in Pakistan by the "Seith Sahib Standard" is just plain ridiculous.
- Secondly, the problem is not of paying the taxes. The problem is of the tax system being complex to a point where it makes your head spin. The majority of the business class is illiterate. These are people who basically inherited their businesses from their fathers, and have spend their lives on their shops since the time they passed 7th class. In Pakistan we have the traditional distribution system for products, so you have following;
The producer ----> The Distributor ----> The Whole seller ----> The Retailer ----> The Consumer
Just look at the most simplest GST calculation possible of a product costing Rs. 90 to the producer, with 10% profit margins at every intermediary and 17% GST. To simplify it further the withholding tax which would be charged on every intermediary wasn't even considered. I again stress, that this is probably the SIMPLEST GST calculation that there could be.
Producer:-
Produces something at 90, and wants to sale it at Rs. 100. A distributor approaches and agrees to buy at Rs. 100, with the GST in play the distributor has to pay Rs. 117 and the producer deposits Rs. 17 to the Government. Distributor:-
Input tax: 17% at 100 = 17
Cost of the product: 117 (incl tax)
Profit to be charged at the product: 10% = 11.7
Sale Price: 128.7
Output tax: 17% at 128.7 = 21.879
Amount being charged from the wholeseller: 150.579
Tax due: Output tax – Input tax = 21.879-17 = 4.879 to be deposited by the distributor. The rest will be transferred to the next intermediary.
Wholeseller :-
Input Tax: 17% at 128.79 = 21.879
Cost of the product: 150.579 (incl tax)
Profit to be charged at the product: 10% = 15.05
Sale Price: 165.629
Output Tax: 17% at 165.629 = 28.15
Amount being charged from the retailer: 193.779
Tax due: Output tax – Input Tax: = 28.15-21.879 = 6.27 to be deposited by the wholeseller.
The rest will be transferred to the next intermediary.
Retailer:-
Input Tax: 17% at 165.629 = 28.15
Cost of the product: 193.779 (incl tax)
Profit to be charged at the product: 10% = 19.3779
Sale Price: 213.15
Output Tax: 17% at 213.15 = 36.2
Tax due: Output tax – Input tax = 36.2-28.15 = 8.08 to be deposited by the retailer.
The rest will be transferred to the next intermediary.
COST TO THE CONSUMERS: 249.35
Conclusion: A product that costed Rs. 90 to the producer will cost Rs. 250 to the consumer. Now, include the with holding tax at every intermediary, and multiply these calculations with the numbers of items each shop has, something that even karyana stores have in the 100's and you can see why the traders protest that the current system is too complex.
-Thirdly, for the ones that are saying that "Ohh these tax thieves just have to pass on the tax on to the consumer. It's just so simple". For the answer to that argument you would have to look inward, and ask aren't we the ones that go out and throw our weight around " Nahi jee yei 300 ki chez nahi hai, mei 150 sai aik rupiya ziada nahi doun ga iska". I just showed you how a product starting at Rs. 90 would cost you, the consumer Rs. 250 by the time it reaches you. With increased prices the demands of goods will fall, and then us consumers will be the same ones that will call the businesses thieves and loteras.
-Fourthly, please do mention where in the world do you need a valid CNIC to shop? I've no arguments in government tracking the purchases so that it can identify a money trail. But why does a business have to be the one documenting the consumer purchases, maintaining a whole file worth of CNIC copies across a whole financial year and risking persecution if any copy goes missing etc. A simpler way is to track credit/debit card purchases where a business has to do nothing additional and the government can still get a money trail.
-Fifthly, majority of the businesses operating in Pakistan are SME's. These are businesses with very limited human resource and investment. They are literally 90% of the total businesses operating in Pakistan, employing nearly 80% of the non agricultural labor force of Pakistan. The measures the govt wants implemented represents an increase in cost of doing business, and the way that businesses shed such costs is by cutting jobs. So your basically looking at a hike in unemployment from a source that employs nearly 80% of the non-agricultural labor force.
-Lastly, for people saying let's burn a couple markets if they don't open or auction their shops off, suggestions that I've been reading since yesterday. Here is a question for my PTI friends (since I also voted PTI this past election) ... Isn't registering a peaceful protest by shutting down one's own business, come under the umbrella of freedom of speech? You might not remember this or might not like to remember this ... but that doesn't mean it didn't happen...
I have been trying to explain this for the last so many days, but PTians have made their minds that traders are tax chors.---- What they don't realize is that majority of traders are small-medium (as you said), these people have very simple record keeping system (manual), it's almost impossible for them to maintain records according to sales tax laws (which is framed by stupid people) ----
Now they ask to maintain record of CNIC, this Govt has lost it's mind, who in his right mind would maintain hundreds of CNIC per year.
Small traders neither have the capacity nor they can bear extra cost of maintaining the system (business activities are already at the bottom and the govt is forcing more burden)
I have been trying to explain this for the last so many days, but PTians have made their minds that traders are tax chors.---- What they don't realize is that majority of traders are small-medium (as you said), these people have very simple record keeping system (manual), it's almost impossible for them to maintain records according to sales tax laws (which is framed by stupid people) ----
Now they ask to maintain record of CNIC, this Govt has lost it's mind, who in his right mind would maintain hundreds of CNIC per year.
Small traders neither have the capacity nor they can bear extra cost of maintaining the system (business activities are already at the bottom and the govt is forcing more burden)
Having simple paper records is no excuse not to do something.
CNIC for 50K transaction. How many people in Pakistan can make a single 50K transaction? More than 80% don't even earn close to 50K per month let alone can afford such a single transaction!
Do you expect the retailer to go directly to the producer, eliminating distributor/wholesaler is neither practical nor possible.
The culprit is the insane taxation system.
Do you expect the retailer to go directly to the producer, eliminating distributor/wholesaler is neither practical nor possible.
The culprit is the insane taxation system.
Culprits are wholesalers and distributors who charge 10% each! Margins of retailers are the highest around the world whereas bulk dealing middlemen charge very small margins.
In Pakistan the middlemen charge more margins than retailers! It's a mafia!
Producer:-
Produces something at 90, and wants to sale it at Rs. 100. A distributor approaches and agrees to buy at Rs. 100, with the GST in play the distributor has to pay Rs. 117 and the producer deposits Rs. 17 to the Government. Distributor:-
Input tax: 17% at 100 = 17
Cost of the product: 117 (incl tax)
Profit to be charged at the product: 10% = 11.7
Sale Price: 128.7
Output tax: 17% at 128.7 = 21.879
Amount being charged from the wholeseller: 150.579
Tax due: Output tax – Input tax = 21.879-17 = 4.879 to be deposited by the distributor. The rest will be transferred to the next intermediary.
Wholeseller :-
Input Tax: 17% at 128.79 = 21.879
Cost of the product: 150.579 (incl tax)
Profit to be charged at the product: 10% = 15.05
Sale Price: 165.629
Output Tax: 17% at 165.629 = 28.15
Amount being charged from the retailer: 193.779
Tax due: Output tax – Input Tax: = 28.15-21.879 = 6.27 to be deposited by the wholeseller.
The rest will be transferred to the next intermediary.
Retailer:-
Input Tax: 17% at 165.629 = 28.15
Cost of the product: 193.779 (incl tax)
Profit to be charged at the product: 10% = 19.3779
Sale Price: 213.15
Output Tax: 17% at 213.15 = 36.2
Tax due: Output tax – Input tax = 36.2-28.15 = 8.08 to be deposited by the retailer.
The rest will be transferred to the next intermediary.
With all due respect, You are naive on GST issue. Below will be the calculation the scenario you took in your example
1. Producer
Cost of Goods Sold = 90, Base Price = 100 + 17% GST. (17 Rs. Charged and deposited to FBR, it's not from pocket of producer as he is passing it to distributor)
Profit 11.11%: Base Price - Cost = (100 - 90) = 10 <-- On these Rs. 10 he must pay income tax as it's his income
2. Distributor
Cost of Product = 100 + 17% GST Input, For 10% profit he have to sell at Base Price = 110 + 17% GST (128.7)
Additional Sales Tax to be charged and deposited to government (18.7 - 17) = 1.7 (it's not from pocket of distributor as he is passing it on to whole seller)
Profit 10%: Base Price - Cost = (110 - 100) = 10 <-- On these Rs. 10 he must pay income tax as it's his income
3. Whole Seller
Cost of Product = 110 + 17% GST Input, For 10% profit he have to sell at Base Price = 121 + 17% GST (141.57)
Additional Sales Tax to be charged and deposited to government (20.57 - 18.7) = 1.87 (it's not from pocket of whole seller as he is passing it on to retailer)
Profit 10%: Base Price - Cost = (121 - 110) = 11 <-- On these Rs. 11 he must pay income tax as it's his income
3. Retailer
Cost of Product = 121 + 17% GST Input, For 10% profit he have to sell at Base Price = 133.1 + 17% GST (155.73)
Additional Sales Tax to be charged and deposited to government (22.63 - 20.57) = 2.06 (it's not from pocket of retailer as he is merely passing it to Me the Mango Man)
Profit 10%: Base Price - Cost = (133.1 - 121) = 12.1 <-- On these Rs. 12.1 he must pay income tax as it's his income
Me the Mango Man have to pay 22.63 tax plus the tax I have already paid on my salary. But how much of these 22.63 reach into national kitty, are all those parties involved in chain have paid income tax on the profits they made from me? Can you answer it when most of these intermediaries are either not register, even if registered don't disclose their actual business volume? And withholding tax is advance income tax on these intermediaries which they should get adjust with their tax liability, for example if tax payable for intermediary (on his profits) is 100, he have paid 25 withholding taxes than net tax payable tax for him will be (100 - 25) = 75, but the cruelty is that they will pass on even those 25 Rs. to me the mango man. I hope, this will tell you why these intermediaries are protesting and don't want to declare their sales.
Dude, You don't even know the basics of taxation and how tax theft is being done and taunting others. For your kind information, bargaining is cultural, seller is from same society and already have built-in this factor in price he quotes first. The same seller will also be bargaining when role is reversed and he is buying something. It's idiotic point to begin with.
I always said that FBR needs to be reformed, tax laws should be simple and straight forward. Will support any demand to make taxation and return filing easy. But being filtrate is no excuse of not paying due taxes.
Government let them protest, keep their business shut for whatever period they want. But must not allow gullu butts to forcefully close the businesses, burn properties and must put bamboo in behind of people trying to do so. But it shouldn't take u-turn and bend in front of blackmailers, everyone must be brought in to books and if he/she is earning taxable income than be made to pay taxes.
Let me begin by thanking you both for correcting me in this calculation, this is not sarcasm. I really mean it. Not just for the favor you've done for correcting me, but also literally exhibiting my point i.e. the taxation system is too complex.
Here are the current figures of education in Pakistan. https://www.thenews.com.pk/print/309542-pakistan-s-literacy-rate-stands-at-58pc
So here is my question, do you really expect that a person who hasn't even studied past sixth grade will know how to compute the figures of output tax and the input tax along with the tax due whilst passing the rest to the next intermediary?
That 10% markup was a supposition to simplify the calculations. Here is the problem though, unless the business itself wants a model where it is integrated right down to the retail, there will most definitely be middlemen. That's just the reality of the situation. Drastically changing that will present a whole new labyrinth of problems.
First of all, I never claimed that every entrepreneur is making 100K/day profit. I only say that overwhelming majority of them don't pay their due taxes and their reluctance even to declare their customer buying 50K or more goods/services is itself proof, because doing so will also expose their on business volume not just of their customer who may be paying his/her taxes (or will come into radar if he/she is also tax evader). However, Just like government get taxes from salaried people, it should do same with non-salaried people, I guess any sensible person with little bit civility will agree that it's injustice that you impose more taxes on people who are already paying taxes but pull your pants down and bend in front of those who are evading taxes.
As per today's exchange rates 50K is a mere $ 316 dollars, and you want businesses that sale laptops, tv's, fridges, washing machines, furniture etc etc. to document more or less every customer they get for the government? How about the government devises ways to document the money trail through alternate ways such as debit/credit transactions etc. Both get you the same results i.e. a money trail, instead of putting the burden on a business, which generates economic activity and employment, the same employment rates that the political class likes to boast about come election season.
Me the Mango Man have to pay 22.63 tax plus the tax I have already paid on my salary. But how much of these 22.63 reach into national kitty, are all those parties involved in chain have paid income tax on the profits they made from me?Can you answer it when most of these intermediaries are either not register, even if registered don't disclose their actual business volume? And withholding tax is advance income tax on these intermediaries which they should get adjust with their tax liability, for example if tax payable for intermediary (on his profits) is 100, he have paid 25 withholding taxes than net tax payable tax for him will be (100 - 25) = 75, but the cruelty is that they will pass on even those 25 Rs. to me the mango man. I hope, this will tell you why these intermediaries are protesting and don't want to declare their sales.
Agreed, the businesses should most definitely be brought in the tax net and be registered. No one is arguing that businesses shouldn't be brought in to the tax net. It's the mechanisms that need reform. Following is something that might interest you.
So here is my question, do you really expect that a person who hasn't even studied past sixth grade will know how to compute the figures of output tax and the input tax along with the tax due whilst passing the rest to the next intermediary?
GST or VAT are never straight forward for even big organisations anywhere in the world hence traders have accountants doing their submissions.
Not every trader is required to be GST registered. Small shops selling below a certain sales/revenue threshold don't need to register so they don't need to report anyways.
For a business with a revenue of 100k per month, as an example, if a 6th grade pass person is running such a business then he is very capable to do simple calculations (as I've done above) for input and output GST. And if he can't, then he should pay an accountancy student 500 rupees per month to do all his calculations for a few hours of work.
GST/VAT is like this all over the world. It's applied throughout the whole supply chain.
It's not that complicated until the organisation size increases.
I've run a small VAT registered company and submitted VAT quarterly and Income tax submissions myself. Final year accounts I had an accountant prepare. When the products range is fixed and VAT rate is fixed as well, then it's straight forward.
It gets complicated when there are different revenue streams and purchases with varying VAT input and output rates.
We have a distribution business in lahore in food/retail edible and in medicine business and it amazes me how huge and big giants are located in small localities and in areas we wont even imagine. People when pushed easily take out 0.1 to 1 million in cash from their drawers just to get a gud discount. The same person would cry you a river and give u a million reason and justifications for a lackluster business through which he is barely surviving while receiving goods from u on a 6 to 10% margin. Hypocrites, self centered and self righteous people is what we are
We have a distribution business in lahore in food/retail edible and in medicine business and it amazes me how huge and big giants are located in small localities and in areas we wont even imagine. People when pushed easily take out 0.1 to 1 million in cash from their drawers just to get a gud discount. The same person would cry you a river and give u a million reason and justifications for a lackluster business through which he is barely surviving while receiving goods from u on a 6 to 10% margin. Hypocrites, self centered and self righteous people is what we are
Boy the genius, I know i am being charged. I also know that i am bearing more burnt because tax thieves are walking free, now when I see those who were living tax free are being cornered then I surely feel happy because if tax is not retrieved from them then ultimately I have to pay share of these mofos in form of more indirect taxes.
Let me begin by thanking you both for correcting me in this calculation, this is not sarcasm. I really mean it. Not just for the favor you've done for correcting me, but also literally exhibiting my point i.e. the taxation system is too complex.
Here are the current figures of education in Pakistan. https://www.thenews.com.pk/print/309542-pakistan-s-literacy-rate-stands-at-58pc
So here is my question, do you really expect that a person who hasn't even studied past sixth grade will know how to compute the figures of output tax and the input tax along with the tax due whilst passing the rest to the next intermediary?
How we can simply taxation, facilitate illiterate people, stop harassment by FBR, stop tax theft is open for debate, there can be a lot which can be done and I am fully supportive of it. But excuse of being illiterate for remaining undocumented is simply ridiculous and isn't acceptable anywhere in world except third world corrupt countries.
For example, to avoid sales tax thefts and saving middlemen and retailers from keep record of it - Government can legislate to make the producers/manufacturers and first importers to put end consumer price tags on their products or publish the retail prices if product is sold in loose form to end consumer, Calculate Sales Tax on final maximum price to be charged to customer, collect it and deposit to state. For example the scenario we talked, considering 10% margins for intermediaries in supply chain the intended final price for end customer is 155.73 which will includes 22.63 ST. So, the producer must print this price on product, and instead of calculating the 17% ST on the price he is selling to distributor, he should charge sales tax based on price for consumer i.e. 22.63. In this way government will get all the sales tax at first stage, for the intermediaries there will be 33.10 (155.73 - 122.63) margin to share, doesn't matter who keep what %age but the price for consumer must not exceed 155.73. In this way there will be no need for intermediaries to keep record of sales tax as they will not be charging any additional sales tax. But that will solve only Sales Tax issue, not the income tax which is calculated based on Income (Profit - Operating Expenses). For small retailers there was proposal of fixed tax --> Link but I am not aware of any progress, but others have to keep record of their purchase, sales, profit and expenses otherwise how state will asses the income and tax liability? I am sure those illiterate whole sellers, distributors etc. can afford to have one computer and operator to keep the records.
As per today's exchange rates 50K is a mere $ 316 dollars, and you want businesses that sale laptops, tv's, fridges, washing machines, furniture etc etc. to document more or less every customer they get for the government? How about the government devises ways to document the money trail through alternate ways such as debit/credit transactions etc. Both get you the same results i.e. a money trail, instead of putting the burden on a business, which generates economic activity and employment, the same employment rates that the political class likes to boast about come election season.
I don't fully agree with CNIC as it's flawed and still dependent on business being sincerely supporting government which is not the case (I have seen some businesses have made fake CNIC in photo shop where CNIC number is one person, name is of another person, address of some other person and photo of someone else, they take black and white print of it to fulfill requirement of copy of CNIC, best of luck to government to go after person with such kind of CNIC), But if you look at my post history, my suggestion is to work on war-footing to provide digital payment infrastructure across the country, bring transaction charges of digital payments to minimal to make it affordable small retailers once infrastructure is ready discontinue bank notes over 100, and put monthly cash withdrawal limit to minimum wage (which is currently 15,000). In this way it will be much easier to get money trails and find tax evaders and fight corruption. But, even if work on this with all sincerity and force, it still will take over a year, but for short term whatever tactics it can think can help to increase tax base, it should do.
