FOR decades, the FBR has found itself stuck in a loop of introducing a series of simplified schemes to bring the vast informal sector into the tax net, only to watch them fall flat. The latest initiative, the Fixed Tax Asaan Scheme for traders, offered a simplified filing process, a flat one per cent tax on turnover, and immunity from routine audits. Yet, despite targeting an estimated 3.5 million eligible traders, only a few thousand enrolled, generating a negligible amount of tax against a target of Rs50 billion.

To understand why well-intentioned schemes consistently fail, we must look beyond administrative sprints and examine the dynamics between taxpayers and the tax collector. In a strategic environment, players choose their actions based on expected payoffs. An analysis of the tax system under a game-theoretic framework, pioneered in Pakistan by renowned economist Dr Hafiz Pasha, helps explain how taxpayers develop strategies to counter the efforts of tax authorities.

Consider, for example, the distinction between filers and non-filers, introduced to encourage greater formality. In essence, it is a weak policy lever: it penalises not being on the Active Taxpayers List........

© Dawn