Failed tax target

THE government’s plan to document retailers for tax purposes through its ‘voluntary’ Tajir Dost Scheme appears to have failed. Media reports suggest that the response to the scheme has been very poor, with traders paying just less than Rs1m during the first quarter of the present fiscal year to September against a target of Rs10bn for the period. This raises serious doubts regarding the FBR’s claims of strengthening compliance and broadening the narrow tax base to raise tax collection from 9.5pc of GDP to over 13pc in the next three years under the recently approved $7bn IMF rescue package. The IMF programme requires the government to collect Rs50bn during FY25 under the scheme launched in April to document the retail sector, which pays negligible taxes in relation to its contribution to the size of the economy.
The scheme aims to bring shopkeepers, dealers, distributors, manufacturer-cum-retailers, importer-cum-retailers, and others involved in the supply chain of goods under a fixed tax regime, seeking to charge them Rs100 to Rs60,000 per month based on the fair market value of their stores, location and sales in 42 cities across the country. Nevertheless, the response has been tepid, with only around 50,000 retailers opting to register under it. That the cash-strapped government appears unwilling to take penal action against noncompliant traders speaks volumes about the latter’s political power. Moreover, it underlines weak tax enforcement by the FBR, and exposes the hollowness of its claims about bringing under-taxed and untaxed sectors, such as retail, agriculture and exports, into the tax system — a core IMF stipulation. The tax authorities have already failed to meet their quarterly collection target by Rs90bn despite massively increasing the burden on salaried individuals and organised businesses. A recent FBR compliance and enforcement plan also targets existing taxpayers rather than those out of the system and those getting massive exemptions and breaks of nearly Rs4tr; ie, powerful business lobbies. Pakistan’s dismal tax performance is at the heart of its recurring economic and financial crises, and the major reason for its rapidly increasing debt and inability to spend enough on the socioeconomic infrastructure. With the IMF closely monitoring the FBR’s performance to cover “risks to its reputation”, the success of the new bailout programme will largely be determined by the board’s ability to achieve its tax goals.
Published in Dawn, October 17th, 2024