PBC releases study on informality

Islamabad: The Pakistan Business Council (PBC), in collaboration with the Centre for Development Policy Research (CDPR) launched their study “Understanding Informality in the Wholesale, Retail and Real Estate Sectors”.

Ashfaq Tola, Minister of State for Revenue and Chairman of the Reforms and Resource Mobilization Commission was the chief guest. Ehsan Malik, CEO of PBC highlighted both tax and non-tax benefits of formalization. With an estimated Rs234 billion potential for additional taxes from wholesale and retail trade and another Rs513 billion from real estate, the tax revenue potential is substantial and failure to tap it increases pressure to tax the already tax to meet fiscal need.

The informal sector also holds back the formal sector from developing scale and competitiveness. An example of this is the sale of counterfeit and smuggled products in shops. In the case of real estate, it ties up capital in unproductive land, thwarting investment in industry.

Dr. Hamid Ateeq Sarwar, former member Policy of FBR and now with the UK government sponsored REMIT programme made a presentation on behalf of the CDPR which explained how the estimates of tax potential were derived and shared the key reform recommendations.

Chief amongst them for wholesale and retail trade was integration of SBP (for banking), NADRA and FBR databases, use of data analytics and artificial intelligence to unearth the true tax potential, reinstatement of CNIC at least for B2B transactions, simplification of returns and strengthening of POS.

For real estate sector, it was recommended that effective valuation system covering FBR, provincial boards of revenue, Excise and Taxation Department be developed, capital gains tax be levied in line with other assets, real estate agents be regulated, properties be taxed by the provinces, and differential in values between owner occupied and rented properties be removed.

He also pointed to the rapid conversion of agriculture land into housing, triggered by returns superior to other assets. Tola appreciated the work done by PBC and CDPR to highlight two important sectors of informality.

He stressed the need for the formal sector to stop dealing with the informal sector if it really wished to promote formalization. He agreed with the need to simplify returns, accelerate digitization and the mining of available data, use of artificial intelligence and review of real estate valuations.

Acknowledging weakness of political will to pursue untaxed sectors, he favoured a combination of pragmatic carrot and stick approach to broaden the tax base. At the same time, he pointed to lack of resources and hunger of the FBR to pursue formalization. Formalizing trade and real estate, he felt is a journey and there were no quick solutions.