THE critical issue of the country’s inability to generate due revenues continues to reverberate with expectations that something tangible might be introduced in the budget for the next financial year to bring informal sectors into tax net in a firm and determined manner.
This is because there is growing realization of the problem among policy makers as well as the multilateral institutions as evident from the remarks made by both Finance Minister Muhammad Aurangzeb and Resident Chief of International Monetary Fund (IMF) in Pakistan Mahir Binici in their speeches delivered at the conference on “Retail Reimagined: Innovate, Collaborate & Thrive”, organized by the Pakistan Retail Business Council (PRBC).
The IMF representative rightly concluded that key macroeconomic challenges facing Pakistan’s economy were debt burden owing to inability to generate revenues up to the potential.
He contributed to the widely-held belief that there was a higher burden of taxation on the formal sector while certain sectors are not contributing to the national exchequer.
The Finance Minister, once again, acknowledged that salaried, manufacturing and to some extent services sectors have been facing disproportionate burden for paying more taxes but this cannot go on.
The gravity of the situation can be gauged by the fact that the share of the retail sector in the country’s GDP stood at 19 percent but their contribution to tax was just hovering at one percent.
However, it is known to all that retailers have been behaving as a pressure group, obstructing even those moves, which were aimed at realizing a fraction of their real income as tax.
We have been pointing out in these columns, time and again, that the resistance offered by retailers is not comprehendible as they will invariably pass on the burden to their customers.
There are legitimate concerns that the ten percent formal sector is paying about twenty-five per cent of its turn over as taxes whereas the 90% informal sector is paying nothing.
Anyhow, the announcement of the Finance Minister that now agriculture, retail/wholesale and real estate will have to step up to travel on this trajectory is welcome and has the backing of the nation as the habit of enjoying free lunch at the cost of other sectors must come to an end.
The government must formulate a workable strategy to expand the tax-net and enforce it with full might even if this meant closure of businesses and outlets that refuse to fulfill their national responsibility of paying their due taxes.
The Government has exercised maximum restraint so far but rejection of the modest ‘Tajor Dost’ scheme by retailers is testimony to the fact that the community is not in a mood to pay taxes, therefore, the authorities will be justified in implementing future schemes through all means.
A beginning has been made towards realization of taxes from the farming community as provinces have passed laws for agriculture income tax but it has to be seen how these laws are used to generate potential revenues from the sector in the face of stiff opposition by the influential and well-connected landlords.
As for real estate, there was an impression and rightly so that the sector has been overburdened with a multitude of taxes both at the federal and provincial levels, which need to be rationalized as the sector is witnessing a recession and the cost of owning a house has gone up significantly.
The government surely has a number of options and resources to identify potential tax-payers and those not paying their due taxes and make them pay.
Total computerization of the Federal Board of Revenue (FBR), linking of points of sales (POS) with the Board and plan to utilize the Artificial Intelligence (AI) to increase tax collection are some of the measures that could help generate additional revenues but more needs to be done to bring professionals and service providers into tax net as a majority of them earn handsomely but pay either nothing or negligible.
