Study provides insights into Pakistan’s struggle to tax retailers and wholesalers

Study provides insights into Pakistan’s struggle to tax retailers and wholesalers

A recent study conducted by the Pakistan Business Council (PBC) sheds light on the country’s persistent challenges in bringing wholesalers and retailers into the tax net.

The study delves into the organizational dynamics and collective action of the retail-wholesale sector, revealing key factors contributing to the failure of taxation efforts.

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The study draws upon the observations made by Andrew Wilder during the 1990s, emphasizing the growing influence of traders in Pakistan’s political landscape. Wilder highlighted the significant impact of bazaar actors, stating, “Traders are now on the rise. Every alley, every bazaar is now organized in the shape of some association or the other. These traders have ‘shutter power’.” This concept of “shutter power” refers to the ability of traders to exert influence by closing their shops, causing disruptions in the urban areas.

The PBC study acknowledges that Wilder’s research touched upon an important but understudied aspect of Pakistan’s domestic politics. It expands upon the concept of “shutter power” and collective action within the retail-wholesale sector, building upon the work of Stanley Kochanek, who first introduced this idea in the 1980s. Kochanek suggested that smaller manufacturers and wholesale-retail trade (WRT) businessmen organize themselves to match the policy and administrative influence of the larger manufacturers who have direct access to political decision-makers. This organization takes place through Chambers of Commerce and other localized associations.

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The study highlights the exponential growth of associational trends within the WRT sector since these earlier observations were made. Marketplaces are now organized on an individual basis, with proprietors forming market associations. While some associations are registered as non-profit societies or trusts, the majority operate informally and are established by dominant individuals within each marketplace to consolidate their influence and expand their interactions with government officials. However, irregular elections and factionalism based on political or ethnic affiliations are common within these associations.

At higher tiers, individual marketplace associations and businesses establish networks with apex organizations at the district, provincial, and national levels. Besides Chambers of Commerce, there are apex associations representing specific goods, such as the Pakistan Auto Spare Parts Importers and Dealers Association (PASPIDA), as well as generic bodies representing retail and wholesale businessmen, such as the All Pakistan Anjuman-i-Tajran (Association of Traders), the Qaumi Tajir Ittehad (National Traders Alliance), and the All Pakistan Association of Small Traders and Cottage Industries. The Ministry of Commerce estimates that there are approximately 200 such apex associations in the retail and wholesale sector.

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The study also highlights the vast number of bazaar associations, both formal and informal, which amount to thousands. These associations possess the ability to mobilize effectively, leveraging their “shutter power” as a significant tool in contentious politics. Between 2005 and 2010, WRT traders ranked as the second-most mobilized occupational group, accounting for around 15% of protests and strikes, just behind government employees.

Despite internal diversity, WRT associations engage in activities that transcend various domains, helping traders consolidate political and social capital. Association leaders provide access to supply-chain networks, controlled labor wages, and occasional financial support. They also facilitate informal dispute resolution for commercial and personal conflicts among traders and other stakeholders.

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Collective action and the provision of club goods contribute to internal solidarity and political cohesiveness within the traders’ community. Additionally, constant engagement with political and bureaucratic actors, including financing elections, exchanging rents, and safeguarding economic interests, grants traders significant political influence, which they utilize for various purposes, including pursuing their own political ambitions.