Tajir Dost fails to boost tax compliance

ISLAMABAD: The Federal Board of Revenue’s (FBR) nearly five-month tax registration drive in 42 cities has brought thousands of traders onto the tax roll, but an average income tax collected from an individual under the Tajir Dost Scheme (TDS) is around Rs2,432 per month.

Despite contributing 20pc to the gross domestic product, the tax contribution of the retail and wholesale sector stands at a mere 4pc. The government has been striving for years to effectively bring this sector into the tax net.

Only 300,000 of an estimated 3.5 million retailers are actively filing tax returns. The TDS aims to bring the remaining 3.2m into the tax net.

Since April 1, tax authorities have registered over 64,000 traders under the scheme. In the first phase, the scheme was implemented in six cities: Karachi, Lahore, Islamabad, Peshawar, Quetta and Rawalpindi. The registration scope was extended to another 36 cities in July.

Official sources told Dawn that on Wednesday, the FBR collected Rs503,363 in income tax from 207 traders in 42 cities. This indicates very low compliance, as the traders have registered under TDS but are unwilling to pay income tax.

The break up showed that 56,081 traders were registered in six cities — Karachi, Lahore, Islamabad, Peshawar, Quetta and Rawalpindi. The remaining 7,919 traders were registered in 36 cities, indicating an inadequate registration push in those cities.

The highest number of 25,138 traders were registered in Lahore, followed by 9,562 in Rawalpindi, 7,971 in Karachi, 5,651 in Islamabad, 4,779 in Peshawar and 2,980 in Quetta, respectively.

A notification — SRO 457 of 2024 — was issued on March 31 to notify the special procedures of the Tajir Dost Scheme. Another SRO1064 of 2024 was issued on July 22, which notified traders of the area-wise monthly advance tax specified for them.

Under the scheme, tax rates will be collected from shopkeepers at a fixed rate of Rs100 to Rs60,000 per month based on the fair market value of the stores and sales. The scheme was implemented to bring traders and wholesalers into the formal tax structure as required by the IMF.

However, these attempts have yet to yield the desired results.

On Wednesday, a countrywide shutter-down protest was observed. The traders will announce the next strategy in the next couple of days.

Published in Dawn, August 29th, 2024