Fixed tax abolished for traders

Decision will give jolt of Rs42b to new budget

ISLAMABAD:

Pakistan on Thursday lost the third chance in eight years to bring traders to the tax net after the finance minister announced the withdrawal of fixed monthly tax of Rs3,000 to Rs10,000, giving a Rs42 billion jolt to the new budget.

“Fixed tax regime for traders has been abolished,” announced Finance Minister Miftah Ismail along with traders’ leader Naeem Mir.

Mir has got the unique distinction of forcing three finance ministers to compromise on their ambitions to bring traders to the tax net.

A salaried person pays more tax in Pakistan than a wealthy trader, indicating inequity in the tax system amid silence of the International Monetary Fund (IMF). Ismail is the third finance minister who has struck a compromise with the traders since 2015.

In 2015, former finance minister Ishaq Dar imposed 0.6% withholding tax on banking transactions to force traders to file tax returns. But he had to strike a compromise due to pressure from the then chief minister and current Prime Minister Shehbaz Sharif.

In 2019, former finance minister Dr Hafeez Shaikh also reached an agreement with the traders and gave them more concessions.

Due to such compromises, during the last fiscal year, the traders paid only Rs6 billion in taxes and hardly 5,000 submitted the annual tax returns, according to the FBR’s statistics.

Ismail, however, vowed that he would increase the traders’ contribution to Rs34 billion in the current fiscal year despite withdrawing the fixed tax. The fixed tax had been imposed after successive governments failed to collect income tax from the traders coupled with the FBR’s lack of enforcement measures.

Wholesalers and retailers constitute 19% of the total economy and the contribution of just Rs6 billion should be a cause of embarrassment for the policymakers and tax collectors.

In the budget, the government imposed a fixed tax on the monthly electricity bills of retailers. It imposed Rs3,000 tax on monthly bills of up to Rs30,000, Rs5,000 on monthly bills of more than Rs30,000 but less than Rs50,000 and Rs10,000 on monthly bills of more than Rs50,000.

These tax amounts were to be doubled if the name of a retailer did not appear on the Active Taxpayers List (ATL) on the date of issuance of the monthly electricity bill.

The old tax regime for the retailers will now be introduced and the previous income tax and sales tax rates will be revised upwards to compensate for the losses being sustained by withdrawing the fixed tax, said the finance minister. “The changes will be made through a presidential ordinance,” he added.

The government had imposed the fixed tax to collect Rs42 billion more from the 2.3 million commercial electricity connections. But Ismail claimed that the government had a plan to recover the amount through the old regime.Earlier, the finance minister announced the withdrawal of the fixed tax regime for those retailers who consumed up to 150 units a month. The party leadership did not agree to it, compelling the finance minister to completely abolish the new regime.

Maryam Nawaz tweeted on Sunday that she had spoken to Finance Minister Miftah Ismail, who assured her that the solution to traders’ complaints would be found to their complete satisfaction.

The decision may risk annoying the IMF that has made broadening of the tax base an important point of the bailout package. Power Division officials said that the distribution companies’ electricity bill recoveries had been affected due to the traders’ decision not to pay the bills in protest.

The traders were of the view that after including taxes, their per-unit electricity cost had shot up to Rs43, which they could not afford. The cost was feared to increase further during the July-September billing cycle due to the government’s decision to increase electricity prices on account of annual tariff hike and monthly fuel price adjustments.

Published in The Express Tribune, August 5^th, 2022.

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