EDITORIAL: Successive governments in Pakistan have tried and failed to bring the country’s traders and retailers into the tax net, leading to a situation today where despite this segment contributing 18 percent to the GDP, its contribution to the tax kitty languishes at a mere four percent.
Recent estimates have put the number of potential taxpayers in the retail sector at 3.5 million, with only 300,000 currently paying taxes.
Tax net-widening drives launched in the past to encompass small traders, wholesalers and shopkeepers have often been met with vociferous protests, leading the government of the day to back off from implementing such measures.
However, given the precarious state of the economy, our dwindling fiscal reserves, as well as pressure from the IMF (International Monetary Fund) to document the economy and expand the tax base, the authorities now have no choice but to make another attempt at documenting and taxing the retail sector.
In this regard, the FBR’s Tajir Dost Scheme, set to commence on April 1, requiring the compulsory tax registration of retailers and wholesalers, will prove to be a significant test for the PML-N-led coalition.
A bare-bones description of the scheme, which could potentially reap tax revenue worth billions, tells us that it will apply to wholesalers, dealers, and retailers operating through a fixed place of business in six cities, namely Karachi, Lahore, Islamabad, Rawalpindi, Quetta and Peshawar, and will require their registration in the National Business Registry within a month.
All provisions of the Income Tax Ordinance will apply to those who are registered under this scheme, including when it comes to the calculation of income for a year and the tax payable on it, as well as computation and payment of advance tax liability.
It must be noted here that the PML-N has a well-earned reputation of bowing to pressures exerted by the traders, and it remains to be seen whether it will remain steadfast in enacting this key measure despite potential backlash.
The initial signs of the strength of its resolve, however, indicate that it is still holding back when it comes to dealing with what is a key constituency for the ruling party.
This can be clearly observed through the one glaring omission from the list of cities earmarked for the Tajir Dost Scheme, i.e., Faisalabad, the third-largest city in the country, second-largest in Punjab, and a vital trading and manufacturing hub that has a significant share in the national economy, behind only Karachi and Lahore.
Faisalabad’s exclusion from the scheme raises valid concerns about the PML-N’s capacity to take the hard decisions required to extricate the economy from the current crisis and relieve the pressure on a highly overtaxed salaried class that is at breaking point.
Even if the Tajir Dost Scheme is meant to be expanded to other parts of the country at a later stage, the exclusion of one of the largest trading centres of Pakistan in its very first phase is inexplicable and raises some pertinent questions.
Is the government really serious about enacting the far-reaching reforms the economy requires, of which, expanding the tax base is a key component, or is it again just going through the motions, and doing the minimum required of it in a bid to fulfil IMF conditions? Furthermore, will it again back down from its decisions at the first sign of discontent from powerful segments of the economy?
If the government wants to quell the uncomfortable questions that Faisalabad’s exclusion from the scheme have raised, it needs to stop making politically expedient choices and rectify this oversight promptly. It must take the bull by the horns, ensure that undocumented businesses are brought into the tax net, and the Tajir Dost Scheme is expanded to other parts of the country as soon as possible.
Copyright Business Recorder, 2024