It is hard to deny that, for too long, the majority of SMEs have remained unregistered and thus stayed out of the tax net. The recent statement of the Chairman SECP that the undocumented economy is as large as the documented economy is acceptance of that harsh reality.
This stigma that must be removed and those having the primary obligation to do so are the untaxed businesses - the huge wholesale and retail networks, and service providers. The tragedy is that neither they nor the chambers and trade associations representing them want to do that. Refusal by the taxable to be taxed defies both the law and moral values because it implies pocketing that share of income, which must voluntarily be surrendered for deployment in venues that serve the common interests of all - Pakistan's infrastructure, and uplifting the under-privileged.
The business community must accept this undeniable truth because the rising fiscal deficit that is widening the gaps in the physical infrastructure (the widest in the power sector), and the falling value of the Rupee, has already forced many businesses to close. Terrorism - the biggest negative driving businesses abroad away from dealing with entities in Pakistan - is the outcome of rising poverty rooted in denial and neglect by a bankrupt (and corrupt) state administration, and by that part of inflation which is engineered by the trading community.
For several days, FBR has been advising the business community through advertisements in the media that it must prominently display the National Tax Number (NTN) Certificates issued to them by the FBR. The demand aims to identify businesses that are out of the tax net.
This fair request is in line with Rule 83 of the Income Tax Rules that apply to all businesses, and unless contested and nullified by a competent judicial authority, must be followed. But the retailer community - the largest sector of the economy - thinks otherwise.
Talking to media, Atiq Mir, the sitting president of the All-Karachi Tajir Ittehad said that the FBR should refrain from imposing such rules because that would create problems (really?) for many traders, without specifically pointing out those 'problems. According to him, the trading community "smells a rat" in this move ie it is the prelude to sending FBR's survey teams to examine traders' books of account. But the real reason behind his defiance of FBR's Rule 83 was what followed next.
According to Mir, majority of the traders registered with his Ittehad "had not filed their tax returns due to their reservations over the amendments in IT return forms." While their objections may have justifiable bases, the right approach was to settle this issue with the FBR.
But, his Ittehad opted to defy the FBR. At a time when the whole world believes that Pakistan's economic problems are the result of not just bad governance but organised tax evasion as well, his Ittehad's approach further damages the image of Pakistan's trading community.
By defying the FBR, the business community could lose trading partners abroad, because traders abroad (except for the black sheep therein) won't be inclined to deal with non-taxpayers in Pakistan, which could have lasting adverse consequences for Pakistan's trading community. Mir claims that he enjoys the support of not only 350 member markets, but also of traders all over Pakistan. Interestingly enough, Karachi alone has over 550 markets (wherein operate roughly 700,000 traders), and Karachi houses a quarter of the national retailer-wholesaler community.
The Chairman of Karachi Wholesalers & Grocers Association Anis Majeed thinks positively. To him, there is no issue with wholesalers over displaying the NTN Certificates. Also, that his association inducts only those wholesalers as its members who hold NTN. He said the FBR only wants to conduct a survey to register new traders, not dig into how much tax they had paid. "There is no harm in displaying NTN Certificates at shops, if traders pay their taxes," he said adding that his association's members have started complying with FBR's Rule 83.
But Mir is proud of the fact that more than 70 percent of Karachi's traders have "shown their defiance" in this context, and that these traders have FPCCI's backing, which was confirmed by FPCCI President Fazal Kadir Khan Shirani and Vice President Shakil Dhingra.
According to Mir, due to the lethargic response of the KCCI in resolving the IT return formats issue, traders sought FPCCI help although, according to a press report, KCCI President Haroon Agar too rejected the FBR move terming it a "black-mailing tactic" aimed at harassment.
The defiance exhibited by the traders (backed by All-Karachi Tajir Ittehad, FPCCI and the KCCI) over displaying NTN Certificates, and co-operating in any additional inquiry and audit, suggests that their majority may not be registered as taxpayers. Should they be proud of this conduct?
Agar questions why the FBR started the NTN Certificates display and survey exercise from Karachi? But none in the FPCCI, KCCI, or the All-Karachi Tajir Ittehad provides a proof of the fact that Karachi alone is being targeted, and FBR too hasn't denied this allegation. What Agar overlooks is the fact that Karachi has a quarter of the national retail-wholesale network, and pays two-thirds of the national tax revenue. It is therefore logical that a corrective exercise begins in Karachi, though it must proceed with the same zeal in all other major cities.
While he said that KCCI would pursue traders' grievances with the FBR over the changes in the IT return formats, KCCI should not have waited for the traders to react as they did; as their representative, KCCI should have been the first to settle the issue with FBR on their behalf.
But in one respect he is right; he points to the fact that FBR should have first held talks with KCCI to devise a strategy that ensures that while FBR's tax-net expansion objective is achieved, the new IT return formats don't become too complex or an irritant.
The real tragedy, however, is lack of vision among the leaders of the business community - the chambers and trade associations - that seem hell bent on proving that sound trading practices isn't their strength; it is materialising unfair gains via tax evasion.
This leadership, that specialises only in seeking tax relieves, neither institutionalising transparency nor self-regulation, doesn't realise that when defying the law becomes the norm in a society, it slides into anarchy and destroys itself, which is happening now. Pakistan needs the image of a stable society wherein issues are settled amicably, not by defying the law; enough of it has already been done to the disadvantage of Pakistan.