Pakistan only collects PKR 1.3 million from traders against IMF target of PKR 10 billion

Pakistan's Federal Board of Revenue (FBR) could collect only PKR 1.3 million ($4,642) by mid-October under the Tajir Dost scheme compared to the target of PKR 10 billion agreed under the new International Monetary Fund (IMF) program.

Despite 60,000+ traders registered under the scheme, only 575 have paid their taxes, highlighting a widespread reluctance to comply.

The IMF had tasked the government with collecting PKR 10 billion in the first quarter, PKR 23.4 billion by the second quarter, PKR 36.7 billion by the third quarter, and a total of PKR 50 billion for fiscal year 2024-25 (FY25). However, the FBR's performance has fallen short, raising concerns about meeting these targets.

A recent IMF report emphasized the importance of revenue administration measures, projecting that PKR 250 billion could be generated by including retailers in the tax net through the Tajir Dost scheme, implementing the Compliance Risk Management (CRM) framework, and expanding the Compliance Improvement Plan (CIP).

The IMF is pushing for the continued implementation of the CIP and the expansion of the Tajir Dost scheme in an effort to incorporate the service sector into the tax net.

'Second major failure'

Analysts say this is the second major taxation-related condition that the FBR has failed to meet under the IMF program, following a shortfall of PKR 90 billion in the first-quarter overall tax collection target.

Barrister Akhtar Hussain Jabbar, Managing Partner at AHJ & Co., said the registration of 60,000 traders was a positive development. “Documentation is the first step, which is progressing. These traders will start paying through compliance and enforcement.”

He said registered traders failing to pay the fixed tax will be issued show-cause notices. “FBR may start recovery of revenue [proceedings] and also impose fines and penalties.”

Despite the retail and wholesale sector contributing 20% to the gross domestic product (GDP), its tax contribution remains a mere 4%.

The government has been striving for years to effectively bring this sector into the tax net, but progress has been slow.

Tajir Dost Scheme

Currently, only 300,000 of an estimated 3.5 million retailers are actively filing tax returns. The Tajir Dost scheme aims to bring the remaining 3.2 million retailers into the tax net.

Under the scheme, shopkeepers are required to pay taxes at a fixed rate ranging from PKR 100 to PKR 60,000 per month, based on the fair market value of their stores and sales.

The scheme was implemented to formally bring traders and wholesalers into the tax structure, as mandated by the IMF.

Meanwhile, traders from Karachi met with top FBR officials with various recommendations. President of All Clifton Traders Alliance Rashid Khan called for a reduction in the upper slab of the taxation table, while spokesman of All Pakistan Anjuman-e-Tajiran Ismail Lalpuria requested the segregation of the normal tax regime from advance tax.