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EDITORIAL: Good luck to the Senate standing committee on finance as it tries to drag two million reluctant retailers into the tax net, a sector notorious for its novel ways of evading as well as avoiding tax.

The committee, headed by Senator Saleem Mandviwalla, has approved the Tax Laws (Second Amendment) Bill, 2022 after minor tweaking, allowing a fixed tax scheme under which FBR (Federal Board of Revenue) will introduce one-page tax forms for retailers. Interestingly, the concerned senators noted how certain laws and procedures, especially the anti-money laundering (AML) act, were incorporated and implemented in a way that harassed the business community away from doing their duty.

Some have gone below the radar, or turned to cash-only transactions, because they don’t want their attempts at tax evasion to be treated as terrorist or criminal acts in the courts, as the AML mandates.

Indeed, the committee raised exactly such questions during its deliberations and argued against issuing notices under AMA unless criminal offences were first established. There are very clear legal differences between tax evasion, tax avoidance and outright money laundering.

And it’s very strange that the country’s tax laws have so far failed to make necessary distinctions. There were murmurs of incentivising taxpayers instead, but only vague ones as always. It’s not yet clear, though, how seriously the retails sector was taken on board before the Bill was presented, and if they are going to cooperate this time or resort to their same old tricks and continue to frustrate the exchequer.

It is very unfortunate that the retail sector contributes 18 percent to the country’s GDP, employs about 16 percent of its workforce, but its tax contribution is barely one percent. This imbalance seriously compromises the national revenue stream and allows a ridiculous arrangement where retailers are able to give the FBR the slip and also gulp the GST they collect on behalf of the government; effectively having their cake and eating it too as they laugh all the way to the bank.

Not all this money is laundered out of the country or routed to terrorist activities of course, and relevant authorities are well aware of this fact, but it is still able to dodge the exchequer, which is equally unacceptable from the revenue collection point of view. That ought to be the reason enough for the government to do whatever is necessary to end this practice, yet here we stand.

Besides, the time when tax authorities could take their sweet time to find new ways of solving the old problem of a very small tax net is long gone.

And it has taken harsh up-front conditions of the IMF (International Monetary Fund) bailout programme to finally impress upon the government that its very survival is now contingent upon increasing tax earnings. Exports hardly budged despite a historic depreciation of the rupee, and remittances have effectively plateaued – with an international recession sure to squeeze them further – so tax revenue will just have to be increased.

Retailers, like all other sectors, have genuine grievances as well, no doubt, but that does not justify the terrible injustice they do to the government’s books. That is why it is essential to take all stakeholders on board before thrashing out policies that the country desperately needs to work. It’s already too late to get the ball rolling on tax reforms and if we are still just throwing ideas at the wall, hoping that something will stick, then we are still dangerously behind the curve.

Whether or not the amendments to the tax laws will push more retailers into the tax net will become clear soon enough. Either way they, and their taxes, will remain under the spotlight and in the news.

Copyright Business Recorder, 2023


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