While the government heaped the burden of consolidation measures on the masses to supposedly save Pakistan from a dreaded sovereign default, the optics of backstepping and scraping the fixed tax scheme for retailers/wholesalers was tauntingly painful though not necessarily unexpected.

The fixed tax scheme, announced in the budget, made traders liable to a pre-determined levy to be charged on the basis of electricity consumption and collected on a monthly basis along with the power bill. It was to discharge traders’ sales and income tax liability simultaneously.

Three slabs were notified for the purpose: Rs3,000 on monthly electricity bills up to Rs30,000, Rs5,000 on bills worth Rs30,000 to 50,000 and Rs10,000 on monthly electricity bills of over 50,000. The rate was to be doubled (cent per cent higher) for non-filers. Besides mobilising additional revenues of Rs30 to 45 billion the government hoped to broaden the tax net through this scheme by bringing a vast community into the tax fold that managed to defeat all such earlier efforts, by hook or crook.

Last week, however, Finance Minister Miftah Ismail and Energy Minister Khurram Dastgir Khan, in presence of jubilant traders, announced rolling back of the fixed tax scheme and reverting to the old system. According to the Federal Board of Revenue (FBR) statistics, cited online, trading and wholesale, which make up roughly 19 per cent of the GDP, chip in a minuscule Rs6bn in taxes to the national exchequer. Out of about 2.3 million traders and shopkeepers country wide, hardly 5,000 file tax returns.

The reversal of the fixed tax scheme on traders is seen as logical by some and political by others

Confirming the decision Foreign Minister Miftah Ismail said in a message: “The fixed tax is done away with. The old regime is back. The tax rate will not change for the first three months though we intend to revise it up a little afterwards.”

Energy minister Khurram Dastgir came out strong in defence of traders when approached for a comment and shared a copy of the relevant document. “Commercial consumers were already paying tax at the rate of 5pc up to Rs20,000 electricity bill and at the rate of 7.5pc on bills above that. They are also paying three other taxes. They will continue to pay at the current rate for the next three months and then we will negotiate for an increase. So instead of a fixed tax, ad valorem regime will continue.”

“If traders can force a surrender in the current hard situation it speaks of their strength and determination to resist any attempt to bring them on FBR’s list. Their strategy is to isolate opponents amid the growing vulnerability of the current government as its political base erodes,” said a top economist critical of the early removal of the PTI government that he thought hurt the democratic cause and destabilised the economy.

Hero of the current round of traders’ resistance, Naeem Mir, Secretary General, All Pakistan Anjuman of Traders, talking to this scribe supported the idea of making tax contribution of the trading activity resonant to its size in Pakistan but held successive governments and not traders responsible for the anomaly.

“Instead of enforcing half-backed unrealistic schemes from up above, blue-eyed experts and naïve babus should invite stakeholders to arrive at a workable plan of better outcomes. No, we didn’t browbeat but win the government over with logic.” He raised several points to make his case and expose weaknesses in the fixed tax plan that would have rendered it counterproductive.

Shabbar Zaidi, former chairman of FBR was disgusted at the rollback of the scheme. “Simply put traders of Pakistan are just not ready to fulfil their financial responsibility or accept the government oversight for the fear of exposure of their underhand dealings. It is not an accident that every time a government tries to discipline them to pay taxes at par with their equals in other sectors, they target the FBR and drag its name through the mud.

“It is an open secret that smuggled, dumped, under-invoiced imported products and even banned items are traded all across the country with immunity. During my time in the FBR, I tried to achieve the targets by shifting the onus of lawful transactions on purchasers but failed. I don’t think any government without the active support of civil society can force this defiant class to comply with the law of the land”.

A retired civil servant and an academic thought it would be silly to expect parties like PML-N and MQM that depend on this class politically to make a serious effort to make them fall in line. “Traders’ vote and street power may be exaggerated but they did successfully rise above all divides to put up a unified resistance whereas other taxpayers, especially the salaried/middle class badly split (socially, economically and ethnically) have to surrender every single time. Yes, it is unfair as we all know what the government conceded to them will be recovered from others, especially the captive salaried taxpayers.”

Nasim Beg a senior executive with a keen eye on the economy interpreted the reversal of fixed tax as a political move of PML-N to shore up its eroding political capital. “They can’t afford the risk of annoying their urban vote base at the current critical juncture.”

Malik Mehr Illahi, President Markazi Tanzeem e Tajiran Khyber Pakhtunkhwa, contested the perception that the latest decision on taxing traders was guided by politics. “It is irresponsible to paint a vibrant self-reliant segment of the economy in a negative light. Their big players can be counted on fingers; the vast majority comprises petty shopkeepers paying high commercial rates for utilities putting many more than the regular eight hours to sustain their shops. For those interested, we are willing to contest each and every charge at a public forum. Our strength is in our numbers and no we are not ready for mistreatment by tax sharks.”

Published in Dawn, The Business and Finance Weekly, August 8th, 2022