Fixed tax scheme

The new fixed tax scheme of the Federal Board of Revenue represents the latest attempt to expand the anaemic tax base using a flawed half-measure that is neither fair nor effective. The new scheme comes a year after the much-touted 'Tajir Dost' scheme, which collected less than Rs1 million against an IMF-imposed target of Rs10 billion for the first quarter. A critical cause of the previous scheme's failure was its voluntary nature and lack of incentives. The new scheme has the same fatal flaws. People cannot be expected to give the government large sums of money out of the goodness of their hearts. There have to be some rewards for filing and harsh penalties for not filing.

In this case, the ridiculously low tax rate of 1%, coupled with audit exemptions, makes it seem like a 'wash' scheme. Participants are also exempt from installing point-of-sale machines or issuing digital invoices, though they will not qualify for returns. Not only is this a step backward on the goal of digitising the economy, but it is also toothless in that nobody who actually pays the flat rate will want a refund - people opting in would invariably do so as a way to save money by paying a significantly lower tax rate.

Still, the scheme would have some value if it genuinely helps widen the tax net, but we will not get our hopes up. Until the government starts treating tax evasion like an actual crime, rather than some sort of game, it will never go beyond this yearly exercise of failed 'scheming'. Small businesses are the backbone of the economy. The government should abandon its incremental approach and go for a policy of genuine incentivisation, while also punishing non-compliance. Higher penalties, including jail time, along with rewards such as lower tax rates and access to loans and investment would be a start. Bringing evaders into the tax net must be done using a path paved with real rewards and real punishments for all.