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Pak traders protest against general sales tax

Haris Darvesh in Karachi

Pakistani traders and shopkeepers for the first time since the military takeover of October 12, 1999, agitated against the government measure to impose across the board general sales tax and have observed countrywide protest rallies, creating an uncertain environment for the government to boost its revenue collection.

Two Presidential ordinances were issued in May, which created unrest and perturbed the small traders, shopkeepers and retail houses. One relates to imposition of the highly anticipated tax survey while the other imposes across the board turnover tax at the retail stage irrespective of an annual sales turnover limit.

The implementation of the tax survey will pave the way for the documentation of the economy at which the IMF is keen upon. The survey will encompass all businesses and individuals and its non-compliance has been made a punishable offense (imprisonment of three months or a fine of as much as Rs 25,000 or both).

Traders are protesting against the imposition of general sales tax. The strikes and rallies have now entered into the tenth day on Wednesday and are likely to continue till Friday.

A military backed tax survey commenced on May 27 to document the economy, filing out declarations and sales at retail level resulting into a strong agitation. But the strikes turned into threats, arrests, tortures and lockouts. Though the intensity from the government is in the low ebb but killing of trader in Islamabad, owner of Bega Bakeries has sparked off violence.

"The traders have extended the strike because the government paid no heed to the ongoing protest,'' said Umar Sailya, chairman of the All Pakistan Organisation of Small Traders and Cottage Industry in Karachi.

"Already they are so many taxes, furthermore the traders and shopkeepers are continuously harassed by the tax collectors. Without greasing their palms no work was done in the past nor to be expected in future," Umar said.

However, main aim of the government is to curb smuggling and to document every goods and items traded in the country, because the quantum of illegal goods is too high, from small pin to highly sophisticated computers or other machinery could be available in country cheaper than through legal ways.

According to International Monetary Fund, the size of the parallel or black economy in Pakistan is around 65 per cent of the total gross domestic product, or GDP, of $ 60 billion. In order to receive International Monetary Fund's help to streamline the economy, the government has to impose a general sales tax and a tax on farm products.

Ali Quershi of WI Carr Securities said that the survey is based on simple 20-30 questions. From the questionnaires it appears that CBR's model of sales and earnings assessment depends primarily on expenditure profile (mainly utility bills) and lifestyle (assets owned) of the assess. While the underlying idea has an intuitive appeal, questionnaires are not free of loopholes. The electricity bills are one of tools to check the documentation, which usually came on inflated basis.

"Similarly, assets indirectly held by individuals shall not be easy to identify. Besides, majority of information being asked for by the government is already available with its departments or organisations. Without independent verification of figures collected during the survey, the tax collection targets appear hard to achieve," he said.

Wirasat Hussain in a professor at Journalism Department of Karachi University said that deteriorating economic conditions call for an urgent, yet progressive attitude, both from the government and the businessmen to resolve the ongoing tussle.

Finance Minister Shaukat Aziz said, "Forget about the past and move forward without any fear as no cases or files would be opened up of the existing tax payer."

He said that the objective of the tax survey is to document the economy because the country can no longer run without mobilizing internal resources. If the country relies on foreign aid, our sovereignty would be at a risk and lending agencies would dictate their terms, he warned. The government aims to increase revenue collection by 100 billion rupees in 2000-2001 through the levy of taxes.

Pakistan spends Rs 180 billion each in debt servicing. The collection from this source would help reduce the debt burden, said Mohmmad Ahsan of Invest Capital Securities.

Still, some traders don't support the strike.

"We have become hostages at the hands of some associations," said Mohammad Usman, a shopkeeper in Saddar, at a shopping center in Karachi. "Already sales are down and profits have shrunk.'' The strike will increase their miseries, he said.

The only way out or to put the economy back on track is to improve the revenue collection, said Mohammad Sohail of IP Securities. The country faces a debt trap, trade gap is widening, industry is declining and major shortfalls in revenue targets are a common occurrence.

Out of the total population of 140 million people only 1.4 million are the tax payers of which only 650,000 are businessmen and the rest are salaried class.

Sohail said that according to conservative estimates there are three million businessmen who do not pay any taxes at all and only 17,500 businessmen pay sales tax.

Pakistan's military leader General Pervez Musharraf is expected to meet representatives of traders and retailers soon.

The IMF halted lending to Pakistan in May 1999 when the then government back-tracked on agreed reforms. Pakistan has asked the IMF to release funds worth $2.5 billion and approve the rescheduling of some of its $ 38 billion of foreign debt.

Finance Minister Shaukat Aziz said the June 17 budget aimed to restore credibility to the battered economy after years of poor management at the hands of corrupt civilian governments.

The military government under General Pervez Musharraf came to power in a coup in October and has been given three years to restore democracy under a Pakistan Supreme Court decision handed down last month.

The year to June 2001 budget is a major test for the new regime and will be closely watched by foreign creditors, not to say the least by the International Monetary Fund and the Asian Development Bank.

Manzoor Ahmad an official at state-run bank said that raise in taxes will have an adverse impact, firstly it will widen the credibility gap between the government and the citizens. Secondly, it will raise the burden on those already in the tax net.

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