Government to Map Shops, Punish Traders Skipping Fixed Tax Scheme

Government to Map Shops, Punish Traders Skipping Fixed Tax Scheme

The government will begin mapping markets and individual shops across Pakistan from Friday, October 2, to identify traders who have stayed out of the fixed tax scheme, a programme that asked traders to pay only 1% tax in return for immunity from audit and freedom to deal in cash.

The decision was taken at a review meeting on Thursday, a day after it emerged that until the statutory deadline, only four new traders had joined the scheme.

A fixed tax scheme that missed its target

Minister of State for Finance Bilal Azhar Kayani chaired the meeting, where the Federal Board of Revenue (FBR) conceded that the response to the scheme had been far below expectations. FBR Chairman Rashid Mahmood Langrial said only 787 tax returns had been filed under the scheme, of which just four were from new filers.

The government had estimated that at least Rs50 billion would be generated from the scheme, and had already added that amount to this fiscal year’s budget. The FBR chairman told the meeting that if the scheme succeeded, collection should cross Rs100 billion, but if it failed, the payments would be negligible.

Dr Hamid Ateeq Sarwar, FBR Member Strategic Transformation, said the government was aiming to bring between 500,000 and one million traders into the tax net out of the 3.7 million who currently sit outside it.

The challenge is political as much as administrative. The trading class accounts for 19% of the economy but contributes less than 1% of taxes, and the PML-N has traditionally been reluctant to press traders hard. The meeting decided that pursuing traders would now be the most difficult, but necessary, part of the scheme.

How the mapping will work

FBR officers, working with trader representatives, will begin mapping markets and every individual shop from Friday, according to a statement issued by the Ministry of Finance.

The state finance minister directed officers to visit markets on a daily schedule and brief shopkeepers about the scheme during the mapping exercise. The government also admitted that there were technical problems in the tax return form designed for traders, but the meeting was told that a fault in the “other income” column, flagged by traders, had been resolved.

Kayani told the meeting that shopkeepers had been given a scheme designed around their own demands, so there was no justification left for not filing returns. Penalties were fixed with the consent of shopkeepers themselves: a trader who misses the deadline will pay Rs10,000 in the first month, Rs25,000 in the second month and Rs50,000 in the third month. The government has already given all taxpayers a 15-day extension for filing returns.

Trade leaders Ajmal Baloch and Kashif Chaudhry, tax consultant Habib Fakhruddin, FBR Member Inland Revenue Operations Zubair Bilal and senior FBR officials attended the meeting, while chief commissioners and commissioners from across the country joined through video link.

Kayani said he remained hopeful the scheme would gain momentum once the FBR began pursuing traders in the field. If traders still did not opt in and fines proved insufficient, strong enforcement measures would follow, he said.

A wider filing slump

The scheme’s weak start sits inside a broader decline in tax filing. The FBR received 5.7 million returns this year against 8.5 million last year, a drop of 32%. Of the 19 million taxpayers registered with the FBR, only 5.7 million, or 30%, chose to file returns.

FAQs

What is the fixed tax scheme for traders?

It is a scheme under which traders can pay a fixed tax of 1% and receive immunity from audit and the liberty to deal in cash. The government designed it with trader representatives to widen the tax net.

What are the penalties for not filing?

After the deadline, a shopkeeper faces a penalty of Rs10,000 in the first month, Rs25,000 in the second month and Rs50,000 in the third month. The government has granted a 15-day extension for all taxpayers.

Why are traders staying away?

Trader groups say they distrust enforcement and doubt audit immunity will hold in practice. The government counters that the scheme was built around the traders’ own demands, leaving no excuse for non-compliance.