Business Recorder Editorials 18th September 2026

Persuasion cannot replace enforcement

EDITORIAL: When the head of the country’s tax authority must ask business leaders to persuade retailers to comply with the law, it goes without saying that something is seriously wrong with the tax system.

Yet this is precisely what FBR (Federal Board of Revenue) Chairman Rashid Mahmood Langrial did this week, asking the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) to actively promote the recently introduced retailers’ scheme so that the tax burden on already-compliant taxpayers could be reduced.

The message conveyed by this approach is highly troubling. Paying tax is not a discretionary act; nor is it a favour rendered to the state. It is a legal obligation.

The fact that Pakistan’s top tax official is effectively beseeching a trade body to encourage greater participation in a tax scheme speaks volumes about the FBR’s long-standing inability, or unwillingness, to enforce taxation in a politically sensitive sector primarily because of absence of political will to take on the tax evaders.

There is little mystery about why. Retailers and wholesalers constitute a politically influential constituency.

Whenever attempts are made to bring them fully into the tax net, they resort to protests, shuttered shops and strikes, with governments often retreating or diluting their demands rather than risk a confrontation with a powerful voting bloc.

Successive dispensations have thus approached the sector with extraordinary caution, opting for negotiation, concessions and simplified schemes over consistent enforcement. The result is a deeply inequitable tax system in which compliant citizens and businesses shoulder an increasing share of the burden while a large segment of the economy remains inadequately taxed.

The latest retailers’ scheme illustrates the problem all too clearly. It allows eligible individual retailers with annual turnover of up to Rs200 million to pay tax at just one percent of gross turnover, subject to a minimum Rs25,000 payment.

In return, they receive simplified compliance, relief from routine audits and certain withholding obligations, and exemption from POS and digital invoicing requirements. Simplification is defensible if it brings genuinely small businesses into the tax net. But there is a fundamental difference between simplifying compliance and abandoning meaningful taxation.

Income tax is ordinarily a tax on income, not sales. A retailer’s actual tax capacity depends on net income after legitimate business expenses. Yet the new arrangement effectively substitutes a flat charge on turnover for that assessment. Ironically, the simplified return that retailers have to file does ask them to report annual sales, purchases, business expenses, net profit and assets.

If such information is being collected, why isn’t it being used to establish the taxpayer’s actual liability? A turnover-based shortcut weakens the connection between taxable income and tax payable, creates distortions between businesses with vastly different margins and can provide opportunities for under-reporting or the legitimisation of unexplained wealth.

The consequences of years of such indulgence are visible in the revenue numbers. Retail and wholesale businesses have historically contributed disproportionately little to the tax pool despite their economic weight.

Only around 300,000 of an estimated 3.5 million retailers were actively filing returns in 2024. The latest withholding-tax figures further underline the disparity. Retailers and wholesalers contributed just Rs12 billion in the first two months of the current fiscal year, down 3.5 percent year-on-year, while the salaried class paid Rs79 billion more, an astounding 658 percent higher.

This is not a sustainable tax policy. The FBR should certainly make compliance easier for small businesses, but facilitation cannot mean preferential treatment. If the state continues to protect politically influential taxpayers from the full rigours of the tax system, it cannot reasonably expect already-compliant citizens to accept ever greater demands.

The answer is not another campaign to persuade retailers to pay. It is a tax administration willing to enforce the law uniformly, regardless of the political constituency involved.

Devolved, only on paper?

EDITORIAL: It turns out that sixteen years after the 18th Constitutional Amendment transferred major responsibilities to the provinces the federal government is still operating 17 ministries in areas that were devolved. This extraordinary failure has now prompted a Senate subcommittee to give the government two weeks to wind up ministries dealing with subjects, including health, education, agriculture, climate change, industries, culture and planning and development.

The committee has even raised the possibility of summoning Prime Minister Shehbaz Sharif over non-compliance. For something constitutionally settled so long ago to remain administratively unsettled today is an indictment of the way government functions.

The 18th Amendment became part of the Constitution in April 2010 yet federal bureaucratic structures dealing with devolved subjects have survived. The government argues that some ministries are required to fulfil international commitments and facilitate coordination, an explanation the Senate committee has rightly rejected on constitutional grounds. Sixteen years should surely have been enough time to establish whatever legitimate coordination mechanisms were required without preserving entire federal structures in areas transferred to the provinces.

This is unacceptable, especially considering the importance of the subjects involved. Education, health, agriculture, climate change and industry directly affect economic performance, human development and everyday life. Divided or overlapping responsibility in such areas inevitably complicates policymaking and accountability.

When functions overlap, expenditure is duplicated, administrative boundaries become blurred and governments acquire the convenient ability to blame another tier when outcomes deteriorate. Pakistan already suffers from weak implementation; adding institutional confusion can only make matters worse.

There is also a familiar bureaucratic problem at work. Government departments and ministries rarely surrender authority willingly. They come with budgets, posts, influence and control over resources, all of which create powerful incentives for institutional survival long after the original justification has disappeared. This is where administrative inefficiency begins to overlap with the patronage and corruption that have plagued governance for decades. Successive governments regularly promise right-sizing, rationalisation and reduced expenditure, yet structures that should have disappeared under a constitutional reform completed more than a decade ago remain firmly in place.

The episode also provides useful perspective for the suddenly fashionable debate about creating new provinces and administrative units. Such proposals may well deserve consideration, but the spectacle of the federal government struggling to complete a constitutional reorganisation agreed upon in 2010 should temper confidence in grand new schemes.

Before designing additional administrative structures, policymakers might examine why existing constitutional arrangements have proved so difficult to implement. The lesson concerns state capacity as much as political intent.

More immediately, there is no justification for allowing the present situation to drift any further. The Senate committee has given the government two weeks to act. That deadline should produce a clear account of which functions remain at the federal level, why they remain there, what legal authority supports their continuation and how the government intends to complete the outstanding devolution. If genuine constitutional complications exist, they should be identified transparently and resolved through the proper process.

The larger failure is one of governance. Pakistan passes reforms, creates implementation mechanisms, declares exercises complete and then discovers years later that significant parts of the old machinery are still functioning. Inefficiency, institutional inertia and vested interests have repeatedly turned reform into an exercise conducted largely on paper.

Sixteen years after the 18th Amendment, there can be no credible plea for more time. The Constitution settled the direction of travel long ago. The government now needs to explain why 17 ministries apparently missed the departure.