Retailers feel pinch of economic slowdown in Pakistan

Resort to cost-cutting measures such as layoffs, closure of outlets

Shahram Haq November 24, 2019
A Reuters file photo of a shopping mall.

LAHORE: Pakistan’s retail sector is looking for some breathing space to remain sustainable during the ongoing economic slowdown.

“The recent hike in taxes on the retail sector has caused turmoil and uncertainty,” said Chainstore Association of Pakistan Chairman Tariq Mehboob. “In fact, many retailers, which represent the organised retail sector, are initiating cost-cutting measures, which include staff layoffs, closure of outlets and much more.”

He added that almost all retailers were currently making efforts to sustain their business and were bearing the brunt of being in the documented sector of the economy.

“Unorganised retailers are running their business as usual as they are united and call strikes to pressurise the government,” the association chairman said while expressing concern.

The association represents 75 companies and 110 brands, and all of them are registered with the Federal Board of Revenue (FBR). However, they regret that this registration is dealing a blow to them.

According to the association, the registered retailers in Pakistan are currently less than 10% while the unregistered retailers have over 90% share.

“In such a scenario, if the government hikes taxes on the organised retailers, which range from 23% to 40% on the invoice price, the unorganised sector will get the benefit and the rest will suffer,” Mehboob said.

The retail sector of Pakistan has grown exponentially in the past one decade, however, in the last one year it had started losing the momentum, although it posted a 3.11% growth in fiscal year 2018-19, he added.

“Government’s entire focus is to make businesses tax compliant and end tax evasion,” he added.

“Its efforts are targeted only at the documented sector so tax authorities are trying different methods to increase compliance while not bothering to touch the unorganised sector as it will create hue and cry and go on a country-wide strike,” the association chairman said.

He pointed out that it was not the end as the unorganised sector was selling the same goods as the organised sector at much cheaper rates and no one could stop it.

“In a scenario when the country’s disposable income is declining, how can you expect a customer to buy an article at high rates when a cheaper alternative is available,” Mehboob asked.

He remarked that in Pakistan a tax officer was also an auditor, who was always on a lookout to penalise the organised sector.

“If we consider the FBR as a company and taxpayers as customers, then this company has failed to satisfy its customers and as a result no one is ready to become a customer of the FBR,” he lamented.

Mehboob said businessmen needed to be genius as they had to deal with 32 government departments and become fully compliant. He asked why the government expected businessmen to have an accurate knowledge of all the 32 departments while doing business.

He argued that this was the reason why the unorganised sector wanted a fixed tax regime for it.

“The retail sector has shrunk 10% in the last one year and if the tax structure, coupled with the overall economic slowdown, did not improve, this decline may accelerate to 30% in the next one year, which will result in massive unemployment,” Mehboob added.

According to the retailers, the sector is completing its cycle and all unnecessary investors are exiting the business.

LXY Global CEO Yousuf Jamshed said over 100 retail outlets had shut down since the start of the current fiscal year.

“The number of closures will increase with time and other retailers, mostly organised, will shut shops due to the slowdown in the economy,” he said. “Customers have stopped spending and are now only purchasing what is necessary for them.”

Retailers held the belief that consolidation was the key for them to sustain at this point in time as the government had its own economic programme, which was focused on tax compliance rather than widening the tax base, said the CEO of LXY Global - a retail consultancy.

Published in The Express Tribune, November 24th, 2019.

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