Good news for economy?

Isn’t it time to remind the govt of its claims to never compromise on steps to document economy, broaden the tax net?

With the economy in a shambles and the Maulana Fazlur Rahman-led caravan comprising thousands of protesters closing in on the federal capital, there could have been no worse time for the government to enter into negotiations with the striking traders who had locked down their shops to press for their demands concerning taxes. The negotiations thus ended in major takeaways for the traders after two days of lockdown. Except for the deferral of the CNIC condition till January 31, 2020 on purchases worth Rs50,000 — which turned out to be a bit of face-saving for the government — it was all a win-win for the retailers class.

Let’s look at some of the sweeping concessions granted to traders by the government under the 11-point agreement reached between them on October 30. Traders with annual turnover of Rs100 million will now pay 0.5% income tax instead of the earlier 1.5% — something that would translate into a 66% fall in income tax revenue. Then, the traders consuming up to Rs1.2 million worth of electricity annually (as against Rs0.6 million previously) as well as those having shops spread over 1,000 square feet or less will be exempt from sales tax registration, and thus the CNIC condition. How many of the total four million traders will be excluded from the sales tax net due to these concessions is not known for sure at the moment, but according to the FBR chief, it is likely to cut the sales tax collection by some 10%. The government has also agreed to review the rate of turnover tax for sectors with low profit ratio.

While the October 31 agreement is going to result in a fall in income tax revenue and shrinking sales tax net, the government claims it to be “good news for the economy” that will increase tax revenues by generating economic activity. Isn’t it time to remind the government if its claims to never ever compromise on steps to document the economy and broaden the tax net?

Published in The Express Tribune, November 1^st, 2019.

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