IN the backdrop of failure of almost all such schemes launched in the past, the Government, on Friday, announced the launch of a small trader scheme requiring businessmen to pay a fixed 1% tax on sales in return for exemptions from tax audits and requirements related to digital transaction systems, with officials projecting annual revenue of Rs.50 billion. Finance Minister Muhammad Aurangzeb unveiled the scheme at a press conference alongside Minister of State for Finance Bilal Azhar Kayani, who described the initiative as a “win-win solution” for the government and small-scale traders.
Small traders and retailers are considered to be one of the largest segments of the society that remain effectively out of the tax net and efforts of the successive governments to document the economy and make them pay even a token tax met with strong resistance. Last year as well, the Government tried to realize this objective by introducing ‘Tajir Dost’ (trader friendly) scheme but this too met the same fate because of the pressure tactics and stiff opposition of the trading community. The salient features of the schemes, as announced by the two ministers, do not spark confidence of any major success in realizing the dream of tax-compliance. In the first instance, the scheme will be applicable to those with an annual turnover of Rs. 200 million but the question arises how correct assessment is possible in the absence of documentation, which has apparently been granted to traders under the scheme. It is known to everybody that even kiosks and small eateries in Islamabad and major cities, besides street shops, earn more than the salary of a grade-20 officer but a majority of them are non-filers.
The Government claims it took representatives of the small traders on board in devising the new scheme but the terms and conditions of the scheme indicate the business community secured major concessions without any surety that the national kitty will receive due taxes from them. The scheme will be applicable to those shopkeepers owning a single outlet with annual sales below Rs. 200 million over the past three years. No doubt, in theory, those not opting for the new scheme will continue to file normal tax returns but it is an open secret that a majority of them is neither filer nor tax-payer and that is why the successive governments have been launching different schemes to bring them into the tax net. Going by the data about the number of small traders and their tax potential, the scheme announced by the Government is a totally non-serious endeavour to expand the tax net, triggering fears that the burden will continue to fall on the existing tax-payers.
The country has an estimated 3.5 million to 4 million small traders and retailers, with the total number of SMEs reaching over 7.1 million. According to the government’s own estimates the tax potential of the retail sector stands at a massive Rs. 4.17 trillion but the new initiative will mobilize only Rs. 50 billion, meaning just a fraction of the true potential. Traders will continue to remain out of the tax net or pay negligible tax but enjoy concessions granted by the Government under the new scheme. Under the framework, registered traders would not be subject to routine tax audits and they will be exempted from installing Point of Sale systems and from acting as withholding tax agents. More importantly, FBR officials will not be allowed to enter complaint shops. The FBR denies but for all purposes the scheme is a sort of tax amnesty for traders and a message for fixed income groups and the general public that the burden of additional taxes will continue to fall squarely on them.
