Retailers must not be allowed to evade taxes

The Federal Board of Revenue (FBR) has begun a nationwide effort to identify and map individual shops and markets, following a lackluster response to the previous Asaan Tax Scheme for retailers. Out of 1,016 returns filed under the scheme, only 91 were new filings. FBR field officers will collaborate with trader representatives to visit markets and shops, raising awareness about registration and tax filing.

The task's scale is evident when considering the disparity between the country's roughly 4.3 million commercial electricity meters and the 600,000 or so commercial meter holders who filed tax returns. The Asaan Tax Scheme is a government attempt to bring the retail sector under the tax net, but it has faced numerous challenges. While the scheme offered a simplified route for retailers to enter the formal tax system, it deviated from a fundamental principle by taxing turnover instead of income.

Despite registering around 190,000 retailers, the scheme's impact has been limited, as registering does not equate to filing returns and paying taxes. The FBR now plans to target between 500,000 and one million retailers, with the remainder being pursued through enforcement. The mapping initiative is a welcome move, but it must not become merely a documentation exercise.

Once the government knows where the shops are and who operates them, it must demonstrate the political will to take action. The penalties for non-compliance have been criticized as insufficient, and they must be significant, consistently enforced, and actually recovered to deter businesses generating substantial sales. The scheme's modest revenue target of Rs50 billion is considered insignificant when compared to the potential tax contribution of Rs3 trillion.

However, the significance of the exercise extends beyond immediate revenue collection, as the credibility of future tax reforms depends on the government's ability to secure compliance. Retailers have shown their capacity to resist taxation through political pressure, and this time, that resistance must not outweigh the state's resolve to build a broader and fairer tax base. The success of the entire reform effort hinges on whether this resolve is sustained.