Why retailers are wary of taxes

The dust has settled on 2010 and it certainly won be remembered as a year when policymakers in Pakistan took difficult decisions on issues of taxation. First VAT and then RGST dominated the headlines, but the year ended with a nine-month extension from the IMF, and it is feared that whatever progress was made will be put to sleep.
Much has been said about the unpopularity of the initiative with stakeholders in the industry, where small time traders and retailers are the ones particularly mobilised against the RGST.
"We are not against taxes per se, its just that further taxation will increase the prices of goods and hurt the consumers," said a representative of Karachis retailers association. While this may seem all too altruistic, voicing public interest for opposing a scheme that hinders public resources certainly defies logic.
Tax experts closely following the developments cite completely different reasons for the anti-taxation sentiments resonated by the retailer community.
Sales tax is deducted at the manufacturing stage, which leaves the wholesale and retail links in the supply chain largely outside the tax net. Retailers are hesitant in declaring turnover for the sake of paying taxes because it would eventually make room for the taxman to assess the income tax of these retailers.
Many, if not most traders cite slack economic conditions as the reasons for lowering the Rs7.5 million threshold. But experts believe otherwise. "Retailers from across Pakistan pay only Rs75 million in taxes, where as I can name at least 10 retailers just now, each of whom should pay Rs75 million individually" former Finance Minister Shaukat Tarin told BR Research in an interview in January 2010.
And then, there are other factors; for instance it is not uncommon for consumers to demand imported goods at retail stores. A lot of consumer goods are under-invoiced when imported in a bid to undercut tax payments. Declaration of sales records would point out the mismatch between import price and retail price. Naturally, many retailers would rather sweep it under the carpet.
The menace of unorganised manufacturing, though not directly related to retailers also has a part to play. In order to save on taxes, manufacturers use premises other than their registered factories to produce goods that go untaxed. If purchase documents and receipts were organised, unscrupulous businessmen would likely have to mend their ways.
And if all of these factors weren enough, leakages from Afghan transit trade have flooded Pakistani markets, all of which are goods on which retailers do not pay taxes - perhaps rightly so, because those goods are not meant to be sold in Pakistan in the first place.
Now that the government has bought some time for the reforms to be put in place, working with the stakeholders to bring them on board and seek out taxation policy solutions that are acceptable to all would be a worthy use of the time.