In a recent effort to expand the tax base, the Federal Board of Revenue (FBR) launched the Tajir Dost Scheme. This initiative, specifically targeting the retail sector, aims at integrating it fully into the tax system. The retail industry has long remained an untapped area, functioning largely in the informal economy, and the majority though paying withholding taxes, is not registered with FBR to avoid filing income tax and sales tax returns/statements. The retail sector includes wholesalers, dealers, retailers, manufacturers cum retailers, importers cum retailers, or such person who combines the activity of retail and wholesale with any other business activity or other person in the supply chain of goods. The real potential of retail outlets in Pakistan, if taxed at a sales tax rate of 4% and income tax at 1% of gross receipts, could net US$15 billion annually. Over three million traders and shopkeepers are engaged in substantial financial transactions without leaving any tax trail. The scheme aims to address this anomaly by formally incorporating all such retailers into the tax framework, thus broadening the tax base and enhancing revenue collection. The Tajir Dost Scheme targets traders and shopkeepers who operate from fixed locations such as shops, stores, warehouses, offices, or similar premises in cities specified by FBR. Businesses under this scheme must register with FBR and pay a minimum advance tax monthly. Initially, in March 2024, the scheme covered six cities but has since then expanded to include 42 cities. The Federal Board of Revenue (FBR) is required to launch a massive enforcement drive in consultation with the trade bodies/associations for the successful implementation of the Tajir Dost Scheme 2024. The FBR needs to chalk out a proper mechanism for making the scheme a success. The FBR must convene meetings with the trade bodies and Tajir associations to finalize modalities for attracting traders towards the new scheme. Until the FBR officials would not approach traders and shopkeepers for registration, it would be difficult for the traders to register voluntarily with the scheme. During the current economic situation, the voluntary compliance of the traders would be difficult. In this regard, the FBR’s field formations have to consult with the relevant traders’ associations for the implementation of the scheme. Moreover, there should be clarity about the strategy to enforce the scheme. The traders have refused to pay advance tax, associated with registration, and have cited the reason as a significant rise in input costs in recent years which continue to rise due to what is euphemistically cited as administrative measures sourced to the non-negotiable conditions agreed with the International Monetary Fund (IMF). That includes a rise in electricity tariffs, and in the price of transportation due to not only fluctuations in the international price of oil and products but also due to the petroleum levy imposed on these products. There is no doubt that the tax structure needs urgent reform and the heavy reliance on indirect taxes accounting for up to 75 percent of all FBR revenue whose incidence on the poor is greater than on the rich must be phased out in favor of direct taxes. This together with taxing the traders as well as the politically influential proprietors may take time, and in the interim period, two years maximum, the government will need to slash current expenditure by at least the amount it raised in this year’s budget against the revised estimates of last year or a little less than 3 trillion rupees. Unfortunately, however, it is increasingly clear that traders’ countrywide August 28 strike has added to economic uncertainty despite a rating upgrade by Moody’s. The FBR and the trade bodies have to work jointly on the implementation of the scheme.
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