Pakistan's failure to effectively tax retailers has been a major obstacle in achieving a sustainable economy. Despite the government's efforts to broaden the tax base and bring traders and wholesalers into the tax net through initiatives like the Tajir Dost Scheme, there has been significant resistance from various trade bodies. The recent strikes against new tax measures introduced by FBR highlight the challenges in implementing effective taxation in the retail sector.
Finance Minister Muhammad Aurangzeb recently pointed out the need to increase the tax-to-GDP ratio from the current 8.8% to a more sustainable level of 15%. Retailers are one of the biggest hurdle in this effort, as they not only push back against paying income tax, but also often refuse to charge the appropriate point of sale taxes. Resistance to tax reforms and reluctance to pay taxes in the retail sector cannot continue if Pakistan is to progress towards a sustainable economy.
Retailers and traders often hide behind the argument that their profit margins are already narrowed because their competitors are selling smuggled goods and driving prices down. To accept that logic is akin to accepting the argument that because there is crime, no one should pay taxes to fund the police. Traders who honestly believe their competitors are selling smuggled goods are more than welcome to inform the authorities instead of letting the illegal trade continue.
It is imperative for traders and retailers to contribute to the country's economy by paying their fair share of taxes. The reluctance to do so not only hampers the government's revenue collection efforts but also poses a threat to the overall economic stability of the country. In fact, if traders started paying their fair share, there is an argument to be made that because some of the burden would be lifted from the salaried class, they would spend more, leading to further economic activity and corresponding increases in sales for retailers and tax revenue for the government.
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