Traders and tax

With another budget being prepared, the government seems set to introduce a new mechanism to bring traders into the tax net. Last year, the government tried to bring traders into the tax net by imposing a 0.6 percent tax on bank transactions of non tax filers. It had hoped it would be able to strong-arm traders into filing taxes. The proposal was met with protests and a long standoff with traders. This year, their new proposal is a much more complicated one. The government wants to introduce a two percent turnover tax on any traders with an electricity bill of over Rs0.6 million per annum. This proposal is supposed to generate between Rs6 billion and Rs10 billion in the coming year. Contrasted with the reality of the situation where only Rs1 billion has been put into the national kitty by traders, the new proposal seems to be moving towards more failure. Traders are said to have demanded a return to a 0.75 rate of taxation over turnover, but no guarantees of compliance can be assured. This may have forced the government to attempt to use a stronger hand. Unfortunately, there has been no attempt to explain what will make the new proposal more effective than the ones put forward earlier.

The consequences of this will be borne by the few traders who actually pay taxes. The larger problem is that successive governments have miserably failed to bring traders into the tax net despite offering a number of schemes in the last 30 years to get them to comply. Coming after a year of complete failure on getting traders to pay tax, it seems the government wants another useless standoff. The logic of proposing a new mechanism to tax traders makes no sense, especially when the government has been unable to enforce its much-touted voluntary tax compliance scheme for them. The most troubling part about every set of new proposals for traders is that they reflect a complete lack of will on the part of the government to enforce its tax rules for certain groups. What is needed is not a new formula on how to tax traders, but a concrete proposal on how the government can enforce a tax regime on traders in line with existing tax laws. With the budget right round the corner, the government needs to shape up its policy on taxes for traders.