The efforts of the Federal Board of Revenue (FBR) to bring the retail sector under the tax net are apparently not yielding the desired results as still a large chunk of retailers is not willing to register with the tax body.
The reasons behind this reluctance are clear. Retailers believe that the tax collecting authority's intentions are not good, in fact many say "we are being advised by the registered retailers not to come under the FBR's radar as it will only increase the burden and you will have to fulfil the undue demands of officials".
"We are not against paying taxes, but the system is too complicated for small businesses like ours. We barely manage to sustain our families, let alone pay additional taxes," said Khalid Mehmood, a shopkeeper in Lahore.
A majority of the retailers think that tax authorities are a burden for them; that's why they try not to enter the tax net, while many do not have awareness of the registration process and the associated benefits.
He added that it was probably not a good time as inflation, unlike the government's claims, was very high and people by and large were not ready to spend other than what was necessary for their daily life.
The government insists that it is committed to bringing the unregistered retailers under the tax net. The FBR has engaged some prominent names of retail associations to lure traders to get registered under the Tajir Dost Scheme. However, so far the results have not been encouraging.
The retail sector is one of the most vibrant and dynamic components of Pakistan's economy, playing a pivotal role in driving growth, creating employment opportunities and meeting consumer needs. It contributes approximately 18% to the national gross domestic product (GDP) and employs more than 16% of the labour force.
According to the Pakistan Bureau of Statistics, the retail sector's total size is estimated to be around Rs20 trillion annually, with around 3.7 million retailers operating nationwide. However, only 10% to 15% of them are registered with the FBR, leaving a staggering 85% to 90% outside of the formal tax net.
"This is a big percentage, which if enters the tax net, things will get much better for the country," said an FBR official. He, however, added that the concerns of retailers had some reality and "we are doing our best to combat our weaknesses".
"The retail sector has immense potential to uplift Pakistan's economy and we are working on innovative solutions to simplify compliance and bring fairness to the taxation system," he stressed.
The tax-compliant retailers, on the other hand, are also not happy as they are facing unfair competition, a high tax burden and the lack of incentives.
"While we contribute diligently to the national exchequer, the government needs to create a level playing field. The unregistered retailers can undercut us because they operate outside of the tax net," said Ali Asher, the owner of a retail store in Karachi.
He added that there was a clear difference that could be observed in the two retailer categories. "We, the registered retailers, are also facing the music as we have to comply with the procedures. When an unregistered retailer observes us, he normally thinks that we are just paying more taxes as there are no benefits for us."
Asher added that to harness the full potential of the sector, a balanced approach was required. "On the one hand, the government must simplify the tax registration processes, reduce compliance costs and provide visible benefits to the tax-paying retailers. On the other, it needs to implement stricter measures to discourage tax evasion and bring the informal sector into the fold."
There was a dire need to readjust the FBR's approach; otherwise it would be an uphill task to widen the country's tax base, he added.
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