Retailers Propose Balanced Approach by FBR
Despite Efforts, Retailers Are Sceptical and Not Ready to Register with Revenue Body
Introduction
The Federal Board of Revenue (FBR) has been striving to bring the retail sector under the tax net. However, these efforts have not yet yielded the desired results as a significant portion of retailers remains unwilling to register with the tax body. This article delves into the reasons behind this reluctance, the potential impact on the economy, and the measures needed to encourage retailers to comply with tax regulations.
Reasons for Reluctance
The reluctance of retailers to register with the FBR is driven by several factors:
1. Distrust of Tax Authorities
Retailers believe that the FBR’s intentions are not in their favor. Many registered retailers advise others to avoid registering to prevent additional burdens and undue demands from tax officials. This distrust creates a significant barrier to tax compliance.
2. Complexity of the Tax System
Small businesses find the tax system too complicated. Khalid Mehmood, a shopkeeper in Lahore, highlights that many small retailers struggle to sustain their families and are therefore unable to manage additional tax responsibilities.
3. Lack of Awareness
Many retailers are unaware of the registration process and the benefits associated with being part of the formal tax net. This lack of information further deters them from registering.
4. Economic Pressures
High inflation rates and economic pressures make it difficult for retailers to bear additional costs. Retailers argue that the timing is not right for imposing more financial burdens on their already strained businesses.
The Government’s Efforts
The government is committed to expanding the tax net by bringing unregistered retailers under formal taxation. The FBR has engaged prominent retail associations to promote the Tajir Dost Scheme, aiming to lure traders into registration. Despite these efforts, the results have been less than satisfactory.
The Economic Significance of the Retail Sector
The retail sector is a vital component of Pakistan’s economy, contributing approximately 18% to the national GDP and employing over 16% of the labor force. According to the Pakistan Bureau of Statistics, the sector’s total size is estimated at around Rs20 trillion annually, with approximately 3.7 million retailers nationwide. However, only 10% to 15% of these retailers are registered with the FBR, leaving a vast majority outside the formal tax net.
The Impact of Unregistered Retailers
1. Loss of Revenue
The significant percentage of unregistered retailers represents a substantial loss of potential revenue for the government. If brought into the tax net, these retailers could contribute significantly to the national exchequer, improving the country’s financial stability.
2. Unfair Competition
Registered retailers face unfair competition from those who operate outside the tax net. Ali Asher, a retail store owner in Karachi, points out that unregistered retailers can undercut prices, creating an uneven playing field for compliant businesses.
A Balanced Approach
To harness the full potential of the retail sector and encourage compliance, a balanced approach is necessary. This involves simplifying tax registration processes, reducing compliance costs, and providing tangible benefits to tax-paying retailers. Additionally, stricter measures are needed to discourage tax evasion and bring the informal sector into the formal economy.
1. Simplifying Registration Processes
The FBR needs to streamline the tax registration process to make it more accessible and less intimidating for small retailers. Clear guidelines, user-friendly procedures, and supportive services can encourage more retailers to register.
2. Reducing Compliance Costs
The government should consider reducing the costs associated with tax compliance. This includes minimizing the paperwork and administrative burden on small businesses, making it easier for them to comply with tax regulations.
3. Providing Benefits
Visible benefits and incentives for registered retailers can encourage compliance. These might include tax reliefs, subsidies, or access to financial services that are not available to unregistered businesses.
4. Implementing Stricter Measures
Stricter enforcement measures are necessary to discourage tax evasion. This could involve regular audits, penalties for non-compliance, and public awareness campaigns to highlight the importance of tax registration.
Conclusion
Bringing the retail sector under the formal tax net is crucial for Pakistan’s economic growth and stability. While the FBR has made efforts to encourage compliance, a balanced approach that addresses the concerns of retailers is essential. Simplifying registration, reducing compliance costs, providing benefits, and implementing stricter measures can create a more inclusive and equitable tax system. By doing so, the government can harness the full potential of the retail sector, ensuring sustainable economic development.
FAQs
1. Why are many retailers reluctant to register with the FBR?
Retailers are reluctant to register due to distrust of tax authorities, the complexity of the tax system, lack of awareness, and economic pressures. They believe that registration will increase their financial burden and subject them to undue demands from tax officials.
2. What efforts has the government made to bring retailers under the tax net?
The government, through the FBR, has engaged prominent retail associations and launched schemes like the Tajir Dost Scheme to encourage retailers to register. However, these efforts have not yet achieved significant results.
3. How does the reluctance of retailers to register impact the economy?
The reluctance of retailers to register results in a substantial loss of potential revenue for the government. It also creates unfair competition for registered retailers, as unregistered businesses can undercut prices and avoid compliance costs.
4. What measures can encourage retailers to register with the FBR?
Simplifying the tax registration process, reducing compliance costs, providing tangible benefits to registered retailers, and implementing stricter measures to discourage tax evasion can encourage more retailers to register.
5. What benefits can registered retailers expect?
Registered retailers can expect benefits such as tax reliefs, subsidies, access to financial services, and a level playing field. These incentives can make compliance more attractive and beneficial for retailers.
