September 25, 2006	Monday	Ramazan 1, 1427

Taxpayers generally try to avoid paying taxes, as much as possible, on the assumption that much of the taxes paid by citizens are siphoned off by civil servants.

Local traders never stop complaining that there is too much taxation and too much of corruption.

To increase tax revenues, the government should seriously consider imposing a five per cent VAT on all retail sales. This will require every retailer to get himself registered with sales tax department. To avoid protests, proper incentives be given. The trick is to reward shopkeepers as well as purchasers.

Under this proposal,shopkeepers will keep a detailed record of the VAT paid to the government. In a month or so, the government will refund 10 per cent of the VAT amount.

For the purchaser, the government should adopt the kind of scheme recently introduced by the Indian state of Kerala and successfully implemented in Taiwan, Turkey and Venezuela.

The retailer will issue a receipt displaying the amount of sales tax on a particular sale. The shopkeeper will also give the purchaser a numbered coupon provided to him by the government (known as “VAT coupon”).

These coupons will be of Rs5 and higher denominations. Every time a person buys commodities worth Rs100, the shopkeeper will give him Rs5 coupon. For a sale of Rs1,000 the purchaser will get a coupon of Rs50. Every week, a draw will be held and the holders of the coupons bearing the winning numbers will be given prizes. If necessary, this scheme can be modified, but the principle may remain the same.

The purchaser will tend to buy goods only where the coupons are given, which will increase the sales of the registered retailers. Everyone will contribute to the exchequer, except of course, those who are very poor. Even those items which are smuggled into the country, will be taxed. There is a tremendous potential for increasing revenue receipts, if such a scheme is introduced.

Shakir Lakhani,
Karachi