FBR vs traders

September 09, 2019

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THE talks between the Federal Board of Revenue and trader associations ended in deadlock on Friday after a strenuous round of negotiations. The trader associations have flexed their muscles in the recent past by effectively carrying out a countrywide strike that saw an enthusiastic response in all major cities, although it was somewhat divided in the metropolis of Karachi. Since then they have been able to muster substantial unity, perhaps enough to repeat the exercise for a longer period, despite the internal divisions in their ranks. The large number of trader bodies means getting them all on one platform is akin to herding cats, especially since their business is very sensitive to daily disruptions. The fact that they have come together in their rejection of the new documentation measures announced in the last budget means that the opposition facing the FBR is powerful, especially now that the so-called war on smuggling and fixed tax regime for retailers is supposed to begin.

It is important to underline here that the FBR has the moral high ground in the whole debate. The fact that traders across Pakistan are fighting to not pay taxes, not get registered, and to continue dealing in smuggled goods does not do their cause any favour. For more than two decades now, the mushrooming growth of the services sector, particularly retail and wholesale trade, has meant that a growing section of our economy is largely undocumented. There is no way to justify this and at some point, the traders will have to come into the net.

For its part, though, the FBR and more generally the government need to take a realistic view of their own ambition as well. Bringing an end to smuggling is a laudable objective, but fighting smuggling at the retail end is a little like treating the symptoms rather than the disease. Leakages from the Afghan Transit Trade are a significant contributor to the scourge of smuggling, as is the connivance of customs officials at the port. And in matters of tax and registration, the traders will prove themselves to be a stubborn lot, capable of putting up a substantial fight for the sake of staying outside the tax net. This will be a long-drawn-out tussle between the authorities and the trader bodies, and time is not on the government’s side since it seems to have programmed a fair amount of revenue collection through the exercise to meet its targets under the IMF programme. The option to declare defeat and roll back the effort, like Gen Musharraf did when he last launched the same initiative back in 2000, carries enormous cost. The FBR is right to power ahead with the effort, but this must be done intelligently to gradually wean the traders from their bad habit of living off undocumented incomes.

Published in Dawn, September 9th, 2019