THE government’s efforts to bring the wholesale and retail sectors into the tax net are intensifying, as officials remain determined to implement the Tajir Dost Scheme (Trader-Friendly Sche­me) despite ongoing protests, strikes and resistance from traders.

The situation has reached a critical juncture, with the country’s tax-to-GDP ratio still languishing below 8.5 per cent. The wholesale and retail sectors, which account for around 20pc of the economy, largely remain outside the tax net, placing more and more burden on the salaried class and other sectors.

Traders, on the other hand, observed a successful nationwide strike earlier this week and are now planning to extend their protest to a three-day strike, with the possibility of an indefinite shutdown if the government does not meet their demands. They argue that their proposals could help expand the country’s tax base more effectively.

For now, the tax machinery appears unfazed by the traders’ tactics.

“They are trying to avoid being brought into the tax net through the Tajir Dost Scheme. But we are not backing down. There is no room for compromise, warned a senior official of the Federal Board of Revenue (FBR).

Govt’s push to bring traders into tax net has met with strong resistance, with both sides refusing to budge an inch from their positions

“How long can they keep striking? Their capacity won’t last beyond five strikes. After that, the situation will become increasingly difficult for them,” he added.

The FBR has offered a review mechanism where traders or shopkeepers can prove their monthly income and move out of the advance tax bracket, the official said, regretting that the traders had yet to respond to this offer.

According to a report, the retail and wholesale sector contributes 18.1pc to the country’s GDP but accounts for only 2pc of direct taxes. In contrast, the industrial sector, which makes up 18.4pc of GDP, contributes 40pc of direct taxes. The salaried class, representing just 2pc of the labour force, contributes 15pc of total direct taxes.

Most taxes in Pakistan are collected indirectly, primarily through consumption, which disproportionately affects the poor.

“As the gap between the destitute and elite increases, there is a need to increase direct taxes, which would also help expand the tax net,” the report said. It described the retail and wholesale sectors as one segment which “barely pays any direct taxes and often creates the most noise whenever there is any effort to extract even a minimal amount of tax.”

‘Lame excuses’

Naeem Mir, general secretary of Anjuman Tajiran Pakistan and a coordinator of the Tajir Dost Scheme, identified two key issues in the conflict between traders and the FBR.

The first is that the tax slabs are based on property value (including shop location and area), ranging from Rs1,000 to Rs60,000 in monthly tax. While the scheme requires traders to pay tax according to these slabs and submit annual returns, traders argue that the FBR should impose tax based on their actual income, not indicative figures. The FBR is considering forming committees led by additional income tax commissioners to assess the traders’ income and calculate taxes accordingly.

“The second issue involves traders who are already tax filers but wish to avoid paying more and resist government attempts to assess their real income,” Mr Mir told Dawn.

He said that many traders have been found filing nil returns repeatedly and are unwilling to have their accounts audited. “The government wants these traders to pay tax based on their actual income, but they refuse,” he added.

Mr Mir noted that while traders are willing to register with the FBR under the scheme, they resist paying tax based on “lame excuses” that they already pay heavy taxes.

He mentioned that some traders, particularly wholesalers and large retailers, have suggested a monthly tax of just Rs1,000. “In a light-hearted manner, I suggested they register with the Benazir Income Support Programme for financial assistance to overcome their ‘hardships’,” he quipped.

Mr Mir explained that when the government asks traders to show their actual income, they resist, and when asked to install point-of-sale systems in their shops, they complain about the cost. “The government has even offered to install the entire system at its own expense, yet the traders remain unwilling to pay taxes. It is very unfortunate,” he lamented.

Indefinite strike

Talking to Dawn, Kashif Chaudhry, central president of Tanzeem-i-Tajiran, argued that the recent strike by traders demonstrated the sector’s unified stance against the FBR’s scheme, which they believe is unviable for expanding the tax base.

“We are now planning another strike for three days soon. And if the government doesn’t accept our demands, we will go on strike for an indefinite period,” he warned, insisting that taxes should be calculated based on actual income rather than property evaluation.

Mr Chaudhry floated four proposals to the government aimed at increasing revenue: introducing tax based on self-assessment with penalties for fraud, calculating tax on annual turnover, using average income as a basis, and implementing a fixed tax based on business volume.

“Unfortunately, our proposals were rejected, likely under pressure from the IMF,” he said, urging the government to abandon the current scheme and engage with traders on simpler taxation methods.

‘No other option’

The FBR estimates that only 5pc of the 3.5 million traders — including 20pc wholesalers and 80pc retailers — currently file tax returns. If implemented, the Tajir Dost Scheme could generate Rs250 billion to Rs300 billion in revenue.

“No country can progress without taxing its wholesale and retail sectors,” the FBR official said. “For the last 75 years, traders have avoided paying taxes. Now, there is no other option.”

Published in Dawn, September 2nd, 2024