How to document traders

LAHORE: Documenting traders is the Achilles’ heel of our economy, as successive governments have lacked the will to confront a significant electorate. The state is further hindered by trade associations that vehemently oppose the documentation of traders who are also key voters in association elections.

Moreover, over 18 million shops in Pakistan primarily deal in fast-moving consumer goods, yet they often fail to comply with government regulations, particularly concerning imported goods. Trade associations resist transparency and taxation out of fear of increased costs and a loss of control over informal earnings. A logical approach would involve engaging trade associations in discussions about the importance of documentation for a stable economy. Such engagement could emphasize long-term benefits like improved infrastructure, healthcare and education. Although this has been attempted several times over the past 37 years, nothing has convinced them. They were even offered tax rebates or reduced rates for early adopters of proper documentation practices, but they remained obstinate.

There is a pressing need to reduce the burden on compliant businesses by bringing more informal traders into the tax net, avoiding heavy reliance on a few sectors. One proposed solution is to conduct raids on businesses; however, many oppose these raids due to fears of harassment and corruption by tax officials. While their concerns are valid, a fair balance must be achieved by conducting raids only where there is substantial evidence of tax evasion. Raids should be a last resort, not a regular practice.

Advancements in artificial intelligence should be harnessed to promote transparency and compliance. The revenue department should shift towards digital audits and e-invoicing to verify sales and tax compliance electronically, minimizing the need for physical interventions. Independent oversight bodies must be established to ensure transparency and fairness during raids, protecting businesses from corruption. Production underreporting can be tackled through electronic means by introducing smart meters on production machinery to track output and energy consumption, allowing tax authorities to cross-check declared outputs.

Systems must be implemented that require businesses to upload real-time production data, which can be paired with customs data to compare imports of raw materials and finished goods exports. Authorities should also develop algorithms to flag discrepancies in reported data, which can then be subject to further inquiry.

The criteria for attaching bank accounts of tax evaders can severely impact businesses, making it critical to handle this cautiously, especially given the risks of corruption. Accounts should only be attached after thorough investigations with concrete evidence of tax evasion. The government should introduce mandatory judicial reviews -- efficient and timely reviews -- before taking action to freeze accounts, allowing businesses the right to contest such decisions.

Tax and customs officials often neglect their own regulations in the name of consumer protection. A directive mandating the printing of contents and warnings in Urdu, alongside the language of the exporting country, could enhance consumer safety; however, implementation in this regard is minimal.

Despite ample time being given, only pharmaceutical importers comply with these regulations. Other high-risk products are marketed without fulfilling this condition. The minimum expiry date for processed foods at clearance varies globally, but many countries mandate a minimum shelf life of 50-75 per cent of the total product life at the time of import. For Pakistan, establishing a minimum of 50 per cent shelf life at clearance could strike a fair balance, ensuring consumers have sufficient time to use these products. Unfortunately, this standard is not followed in Pakistan, and expired food products are frequently sold throughout the country by both small and large retailers.