Flaws in the Tajir Dost Scheme: Addressing Its Unrealistic Approach and Complexity

The Tajir Dost Scheme, aimed at improving voluntary business registration and compliance, has faced significant criticism due to its lack of effective incentives and its added complexity. While the scheme's intentions were to streamline tax processes and encourage greater participation from businesses, its current design has inadvertently created additional burdens and failed to motivate businesses to register voluntarily. To address these issues, a fundamental overhaul is needed, focusing on simplification and meaningful incentives.

One of the central criticisms of the Tajir Dost Scheme is its lack of substantial incentives for businesses to voluntarily register. The scheme's framework, conceived in high-level discussions and executed without adequate ground-level input, has not resonated with the realities of everyday business operations. Businesses, particularly small and medium-sized enterprises (SMEs), often find themselves grappling with the complexity and bureaucratic hurdles imposed by the scheme. These challenges outweigh the benefits that the scheme purports to offer.

An effective tax scheme requires input from those it impacts. The Tajir Dost Scheme's design, developed in isolation from on-the-ground realities, highlights the need for greater engagement with businesses during the planning stages. By consulting with business owners, industry experts, and tax professionals, policymakers can create a scheme that addresses actual needs and challenges.

Regarding the treatment of businesses particularly for Karachi, there is a notable injustice. Out of the total 210 areas , 47 areas are classified as high-earning (with the highest fixed tax rate of PKR 720,000 per year). These 47 areas represent nearly 75% of all Pakistan’s top-earning business areas, which is simply unfair. Lahore has only 4, whereas Islamabad's 23 areas accounted as high earning areas.

There may be a perception that the FBR compiles and measures the income of specific areas based on their data, which is undoubtedly unrealistic and presumptive. This approach not only fails to accurately reflect the economic realities of those areas but also indicates a lack of genuine intent to identify and address potential tax evaders.

Another significant aspect of this flawed measurement is the disparity in the number of areas classified for economic activity. Karachi, the largest hub of economic activity, has only 210 areas, whereas Lahore is represented by 1,266 areas, Faisalabad by 2,083, and even a smaller city like Mandi Bahauddin is divided into 534 areas, reflecting various income classes. This discrepancy highlights a potential inconsistency in how economic activity is assessed and categorized across different cities by FBR.

The Tajir Dost Scheme, falls short in its current form due to a lack of substantial incentives, unjustified and preconception assessments, and added complexity. For the scheme to achieve its goals of increasing voluntary registration and ensuring compliance, a comprehensive redesign is essential. This redesign should prioritize simplifying the registration and compliance processes, offering meaningful incentives, and actively engaging with the business community to ensure that the scheme is both practical and beneficial. By addressing these shortcomings, policymakers can develop a more effective and inclusive tax system that better supports businesses and improves overall compliance.