Pakistan: Zero tolerance towards tax evaders

The Chairman of the Standing Committee of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) for small traders and cottage industries and President of Karachi Tajir Ittehad, Atiq Mir, categorically refused to abide by the Federal Board of Revenue's (FBR) directive to small traders to display their National Tax Numbers (NTNs) prominently at their places of business. He added that he enjoys full support of an estimated 650,000 to 700,000 Karachi traders and his concern over the FBR directive is that it would create problems for traders. When asked about the problems, he stated that the traders were worried that the display would enable the FBR to launch an audit and make additional inquiries on each trader's financial accounts. The objective of the display as per the FBR is to ensure that all small traders/shop owners are registered and therefore no longer operating in the black economy. Evidence consistently points to the fact that the poor tax to Gross Domestic Product ratio is attributable to the existence of large black economy that is around 50 percent of the formal economy. Those who operate in the black economy are not only the drug mafia and those engaged in corruption but also traders who have consistently refused to allow official documentation of their businesses that they fear would lead the FBR to bring them into the tax net as the Board would have access to their detailed financial accounts. The International Monetary Fund (IMF) condition under the 7.6 billion dollar Stand-By Arrangement that the government was unable to implement and which eventually led to first stalling and then suspension of the programme with two tranches remaining undisbursed, stipulated that "Following the seminar (planned seminar to review tax policy and administration) in December 2008, the government will initiate a process to implement a full Value Added Tax (VAT) with minimal exemptions, to be administered by the FBR." The reason for the failure to implement this condition: organised protests by small traders that on several occasions turned violent throughout the country and their support by political parties for their own political exigencies. In this context, some political parties as well as traders have argued that the parliament, overly represented by absentee landlords, has been unfair in not legislating a tax on farm income at the same rate as is levied on other sectors and maintain that tax exemption for these rich and influential farmers must be withdrawn prior to taxing the small traders. There is merit in this argument and the parliament, provincial and federal, must begin the process of withdrawing exemptions as agreed under the IMF programme. It is time for zero-tolerance for tax evaders of all ilk and that the political support for the traders' defiance is withdrawn given the current poor state of the economy which is grappling with a deficit of 8.5 percent - 0.9 percentage points higher than what the PPP government inherited in 2008 and which prompted it to go for the IMF programme. In effect, all political parties must throw their weight behind these efforts by FBR because this may well reduce our reliance on foreign assistance and internal borrowing, policies that are highly inflationary, on the one hand and generate more revenue for development of the sadly deficient infrastructure sectors on the other. For small traders to announce a campaign of resistance against a legitimate FBR directive is incomprehensible. If the law as legislated by parliament that represents the people of the country requires a trader/shop owner to display NTN then this announcement of defiance is unmerited. There is no doubt that the small traders are going to launch a similar campaign that was successful in the past namely violent street protests as well as continued support by some political parties. As aforementioned one would hope that political parties do not extend this support in the national interest and the traders are brought into the tax net, which would be levied on the income of each trader.