The government extends the tax status of traders

Islamabad:

The government has quietly expanded the scope of the traders’ program to include shops located in residential areas as there is uncertainty over the approval of the $7 billion International Monetary Fund (IMF) program due to funding gap and ad-hoc relief for electricity consumers.

A few days ago, the federal government extended the status of retailers to cover shops of 100 square feet in residential areas, which were earlier exempted from fixed income tax of 100 to 60,000 rupees per month, according to government sources. This move was necessary to address the IMF’s objections to the narrow basis of the new scheme.

However, due to mounting pressure from traders and Jamaat-e-Islami, the government kept this decision under wraps. The changes were made in the notification of the Tajir Dost special procedure to respond to the IMF’s concerns, the sources said. The government partially amended the exemption clause from the notification, which exempted shops of 100 square feet and below located in a residential area from the scope of the new regime. However, the revised newspaper notification has not been made public to avoid backlash.

Federal Board of Revenue (FBR) spokesperson Bakhtiar Muhammad did not respond to a request for comment.

A senior FBR official said the government will reveal the notification at a politically opportune time. He confirmed that traders operating in residential areas have now been brought under the fixed income tax regime.

Last month, the government implemented the new scheme for traders with a target of collecting Rs 50 billion during this financial year 2024-25. However, certain exemptions, mainly related to shops of 100 square feet and the flat rate of Rs 100 on shops of commercial areas of 50 square feet, made it a challenge for the FBR to achieve this target.

So far, about 62 traders have come into the tax net out of about millions, contributing just Rs 115,000 towards the target of Rs 50 billion. The government’s decision to extend the regime quietly underscores the weakening of its political resolve to defend critical economic decisions. This development comes amid a lack of certainty over the conduct of the IMF’s executive board meeting this month. Finance ministry sources said efforts are being made to ensure that the meeting takes place before the end of August, as announced by Finance Minister Muhammad Aurangzeb.

There have been no official statements on the matter, with the IMF and the Finance Ministry remaining tight-lipped. The finance minister publicly stated that the IMF board will approve the loan installment by the end of August. The IMF administration has conditionally released Pakistan’s case for approval, noting that the country has yet to fully fill the external financing gap. China has not yet moved on commercial loans maturing abroad, leaving a financing gap that needs to be addressed before the board meeting, sources said.

Recently, the Finance Minister said that all three bilateral creditors have agreed to proceed with $12 billion worth of cash deposits. Central bank governor Jameel Ahmad said last week that Pakistan also needed a trade loan shift of $4.4 billion from China. Punjab’s unilateral decisions to provide Rs 14 per unit electricity subsidy to consumers using up to 500 units a month and to distribute rooftop solar panels worth Rs 700 billion are seen as against the spirit of its $7 billion structural reform programme.

Finance ministry sources noted that the electricity subsidy of Rs 14 per unit also includes Rs 3 per unit in sales tax, complicating matters related to the IMF.

In a meeting with Ahmed Abdelaal, Chairman of Mashreq Bank, held on Monday, Finance Minister Muhammad Aurangzeb said the IMF is expected to approve Pakistan’s program, although he did not confirm whether the IMF’s Board of Directors would meet this month .

The new IMF program targets traders, farmers and exporters—the three sectors that do not pay taxes commensurate with their contributions to the economy.

The coalition government had announced the traders’ scheme for all agents, distributors, retailers, manufacturers-with-retailers, importers-with-retailers or any person involved in the supply chain of goods doing business in 42 cities. Of these 42 cities, 25 are in Punjab, seven in Sindh, six in Khyber-Pakhtunkhwa, three in Balochistan and one in Islamabad. Previous attempts to bring traders into the tax net have been unsuccessful, including mandatory door-to-door registration during the tenure of General Pervez Musharraf.

The government has also imposed a nominal tax of Rs 100 per month on shops up to 50 sq ft in commercial areas, makeshift shops, kiosks or small shops not exceeding 5×3 sq ft, instead of charging the normal progressive income tax. This amount was considered insignificant.

This development comes amid a strike called by the Central Traders Organization and All Pakistan Anjuman-e-Tajiran, which has announced a nationwide shutdown on August 28.