Taxing small traders: Pakistan not alone to face the problem

The problem of taxing small businessmen is not confined to Pakistan alone. Malaysian and Indonesian tax authorities are also facing the same problem, which needs monitoring of taxpayers' profiles, effective audit and simplified procedures for encouraging voluntary compliance.
The Inland Revenue Board of Malaysia (IRBM) and Directorate General of Taxes, Indonesia, would present their papers on 'voluntary compliance' in the coming Third Technical Conference of the Association of Tax Authorities of Islamic Countries (ATAIC).
The Malaysian paper will highlight that the soft approach of voluntarily compliance is more effective as compared to the hard approach of punishing the taxpayer to comply.
The concept of Taxpayers' Service Month (TSM) is popular in Malaysia where temporary counters are set up at private and government offices, shopping complexes, hospitals, schools, banks, multi-purpose halls and other suitable locations.
The paper specifies that the major problem areas in taxing small traders are non-compliance and improper/incomplete business records. High level of illiteracy results in poor record keeping making accounting and auditing procedures difficult.
Out of 726 small traders' cases audited in 2005, 326 were incomplete. It means that 45 percent of small traders did not keep complete record of their business transactions.
The field survey is a useful tool in bringing non-registrants on record. On average, about 4 percent of small trader taxpayers visited are non-registrants. The Compliance Department of the IRBM monitors the processing of information obtained through field survey.
Besides field survey, IRBM also uses information from other government agencies such as local licensing authorities and registrar of business to match with taxpayers' information for verification purposes.
In addition to e-filing, the tax department is also co-ordinating with the tax agents.
During the conference, Indonesian tax authorities would elaborate strategy to deal with the low rate of tax compliance, especially individual taxpayers. It's a big challenge for tax administration to handle non-filers of returns.
The authority admitted that role of audit for individual taxpayers is limited. Unexplored small traders need special efforts to increase compliance through audit.
The revenue from small traders contributes 1.63 percent of total revenue in Indonesia. Individual income taxpayer, who has turnover below 600 million rupiah, is allowed to opt presumptive method to calculate tax amount or usual rules based on taxpayer's accounts.
Taxpayer with turnover below the VAT threshold (600 million rupiahs) are allowed to opt the non-VAT system.
For tax administration purposes, VAT threshold is applicable but other than tax administration, small businesses may be defined by number of employees, capital or assets base and entity structure.