Experts demand that the government take steps to generate revenue from tax-free sectors

ISLAMABAD – Speakers at Monday’s pre-budget consultative session demanded the government to provide a special track and trace system to bring retailers and businesses from informal sectors under progressive taxes into the tax net to generate revenue from untaxed sectors.

The Sustainable Development Policy Institute (SDPI) organized a consultative discussion entitled: “Pre-Budget Seminar: Tax Reforms in Agriculture, Retail and Real Estate Sectors.” In his introductory remarks, Dr Abid Qaiyum Suleri, Executive Director of SDPI, said the consultation was convened to observe over-burdened sectors in the budget, while the International Monetary Fund (IMF) in its discussions emphasized the inclusion of real estate, IT and agriculture sectors covered tax net. Dr Suleri stressed that it was necessary to disclose the bottlenecks faced by the above three sectors in paying taxes as they were important not only for the upcoming budget but also in the run-up to the negotiations with the IMF to provide a complete picture of the current tax status and the proposed taxation implications of the plan. He added that these sectors are willing to pay taxes and it is necessary to take into account their suggestions in policy-making processes.

Dr Vaqar Ahmed, co-executive director of SDPI, said there was strong demand from government partners for independent pre-budget consultations and the IMF also wanted them to take place in a timely manner as they would not only provide guidance to the government but also to the Fund during its next program discussion. He added that it will show the economic trajectory in the next 2-3 years. “We discussed three sectors: retail, agriculture and real estate. A large informal sector, challenges in implementing track and trace systems, the Federal Board of Revenue’s (FBR) POS system and the growing number of online sellers evading taxes contribute to difficulties in tax collection in the retail sector. While discussions on permanent taxes on retailers continue, the question of fairness and progressivity in such a system remains unanswered,” he added.

Dr. Vaqar mentioned that due to the informal nature of the agriculture sector, calculating and collecting the actual tax liability in this sector has proven difficult. He added that technology-based solutions offer promising solutions to improve accuracy. Ahsan Zafar Bakhtawri, president of the Islamabad Chamber of Commerce and Industry (ICCI), said the retail sector pays taxes in the country but the integration of retailers who are not part of the system is crucial.

He demanded that the government develop, with the support of the Law Enforcement Agency (LEA), a proper track and trace system that could identify non-tax paying retailers who were doing annual business worth billions of rupees but were not paying taxes. For example, he said leading tobacco and pharmaceutical companies should not supply their products to retailers without an NTN or national tax number. “Tobacco companies selling imported cigarettes cost Rp 350 billion in lost revenue every year,” he added. The POS integration system must integrate all retailers, otherwise it would lead to a huge erosion of market balance among competitors, he added.

Afaq Tiwana, director general of the Pakistan Farmers Association, said the three sectors face a common challenge of bringing the informal sector under the tax regime. He mentioned that the agricultural sector pays taxes at three levels, which also includes the tax return issued by patwari, which collects a cumulative tax of 15%. He added that although it is an informal sector, its land records have been digitized and its economy is digitally documented. “Taxation should be fair with the deregulation of the agricultural sector, which is important because the government should reduce its involvement in our system and bring us into the tax net, which should be a voluntary permanent tax system,” he said.

Ahsan Malik, senior real estate analyst, said there is a trust deficit between regulators and the non-tax-paying sectors, which needs to be addressed through a fair and progressive tax system. He added that FBR’s regulatory and enforcement measures further erode the confidence of the masses as tax paying entities and non-tax paying entities should be treated separately. He added that development and housing societies running and thriving businesses in this sector avoided paying taxes because their real estate partners did not want to pay for the government’s inefficiency and incompetence. “Local industries should be promoted and imported luxury products should be taxed. We need to give space to small farmers and retailers. The new system should reduce the burden on already taxed sectors,” Malik said. Sumera Abbasi, executive director of TiE, said there was a need to provide transparency to start-ups and small businesses with relevant retailer categories to ensure an inclusive tax system.

She said many retailers, especially poor women, avoid paying taxes because of the labor-intensive paperwork that makes women entrepreneurs disinterested in taxes. She added that stringent tax regulatory systems have not provided a conducive environment for startups to thrive.

“Compliance costs need to be reduced and made fair for the local masses, while women in startups are not discussed during the budget, this should be discussed more clearly,” Sumera Abbasi noted.