Fixed tax failure

The government's flagship fixed tax scheme for retailers has collapsed at the starting line. Data from the final day for tax filing - September 30 - shows that just four new shopkeepers filed returns under the 1% fixed tax regime, while 787 returns were submitted in total. For comparison, an estimated 3.7 million retailers operate outside the tax net. The self-assessment scheme depended heavily on business owners acting scrupulously, which is laughable for anyone familiar with how price controls are followed in the country. Instead of willingly paying the nominal one per cent tax to fully legalise company revenues, business owners have instead chosen to go the outlaw route and refuse to willingly comply. Meanwhile, the FBR's notoriously weak enforcement capabilities mean that most of the offenders will feel no pain for their blatant tax evasion. What makes things worse is that the scheme was extraordinarily generous, with many critics initially fearing that it was giving businesses a golden opportunity to whiten black money. Instead, it appears that many Pakistanis prefer their money to be black. The tax scheme offers retailers with annual sales up to Rs200 million a nominal 1% tax on revenue, complete exemption from audits, and no requirement to install point-of-sale systems. In return, traders were asked only to register and file. The government consulted trade bodies, launched a simplified Urdu-language application, and extended the filing deadline by fifteen days. Yet only 2,195 retailers registered in the first two months - a compliance rate of less than 0.06%. Unfortunately, non-compliance often carries hilariously low penalties —between Rs10,000 and Rs50,000 - which would probably not serve as a deterrent for most people. In fact, some analysts claim they are keeping the scheme alive on purpose. Minister of State for Finance Bilal Azhar Kayani, the brainchild of the scheme, has also threatened more punitive measures, including disconnecting utilities and freezing bank balances.