Fixed Tax for Traders Suggested After Tajir Dost Scheme Failure

Karachi, February 28, 2025 – The failure of the much-hyped Tajir Dost Scheme (TDS) has prompted the business community in Pakistan to advocate for a fixed tax regime tailored specifically for traders. This demand has gained significant traction as traders seek a simplified and transparent taxation system that ensures ease of doing business while boosting national revenue. In its recommendations for the upcoming 2025-26 budget , the Pakistan Business Forum (PBF) has urged the government to implement a fixed tax system for traders. The PBF argues that the TDS failed to achieve its objectives, falling short of generating anticipated tax revenues and failing to encourage voluntary compliance among traders.

Why a Fixed Tax Regime?

The proposed fixed tax regime aims to address longstanding challenges in Pakistan’s taxation system. Ahmad Jawad, Chief Organizer of the PBF, has outlined a tiered structure for fixed taxes:

• Rs 20,000 per month for large retailers,
• Rs 10,000 per month for small retailers, and
• Rs 5,000 per month for traders operating in villages and smaller towns.

Jawad further suggested integrating tax collection with electricity bills, ensuring that once traders pay their dues, they are not subjected to additional tax inquiries. This streamlined approach would eliminate bureaucratic hurdles and reduce the burden on traders, fostering trust in the system.

The Need for Economic Stability

Pakistan’s economy is at a critical juncture, and increasing tax revenue is essential for stabilization. Jawad emphasized that the wholesale and retail trade sector contributes 18.1% to GDP but accounts for only 2% of direct tax revenue . In stark contrast, the industrial sector, which makes up 18.4% of GDP , contributes a staggering 40% to tax revenues . To bridge this gap, Jawad proposed raising Pakistan’s annual tax collection to at least 15 trillion rupees . He stressed that the Federal Board of Revenue (FBR) should focus on expanding the tax net rather than overburdening existing taxpayers. A fair, transparent, and business-friendly tax system is crucial to achieving higher compliance rates.

Pakistan’s Tax-to-GDP Ratio: A Cause for Concern

Pakistan’s current tax-to-GDP ratio stands at a mere 9% , significantly lower than the 16-18% achieved by regional countries like India and Bangladesh. This disparity highlights the urgent need for reform. Jawad argued that imposing taxes based on turnover has historically led to resistance among traders, disrupting established business operations. A fixed tax system, on the other hand, could mitigate these issues by offering predictability and reducing administrative complexities.

Challenges in Bringing Traders into the Formal Tax Net

Successive governments in Pakistan have struggled to bring traders into the formal tax net. Despite numerous initiatives, voluntary tax compliance in the trading sector remains alarmingly low. The PBF asserts that leniency towards traders must end, and the government must adopt a firm yet fair stance to ensure compliance. A fixed tax regime could serve as a turning point, addressing traders’ concerns while aligning with broader economic goals. By simplifying the process and ensuring transparency, the government can foster a culture of compliance and boost revenue generation.

Key Recommendations for Budget 2025-26

The PBF’s recommendations for the upcoming budget include:

• Introduction of a fixed tax regime for traders, with tiered rates based on business size.
• Integration of tax payments with utility bills to streamline collections and reduce administrative burdens.
• Expansion of the tax net to include more sectors and individuals, rather than overburdening existing taxpayers.
• Focus on transparency and fairness to build trust and encourage voluntary compliance.

Conclusion: A Step Towards Economic Growth

The failure of the Tajir Dost Scheme underscores the need for a fresh approach to taxation in Pakistan. A fixed tax regime for traders could simplify compliance, increase revenue, and contribute to economic stability. As the government prepares the 2025-26 budget, it must prioritize reforms that balance the needs of businesses with the imperatives of national growth. By adopting the PBF’s recommendations, Pakistan can take a significant step toward enhancing its tax-to-GDP ratio, stabilizing its economy, and fostering a business-friendly environment. The time for action is now—will the government rise to the occasion?