KARACHI: The Chainstore Association of Pakistan (CAP), representing the organized segment of the country’s retail sector, voiced serious concerns on Saturday regarding what it described as a worsening operational environment for tax-compliant businesses. CAP attributes this decline to aggressive tax revenue enforcement tactics and ongoing, unresolved issues with the Federal Board of Revenue’s (FBR) Point-of-Sale (POS) integration system.
Significance of the Organized Sector
The organized retail sector constitutes a substantial part of Pakistan’s overall retail and wholesale trade landscape. It is a major employer, directly providing jobs for over one million people, and supports a vast ecosystem including shopping malls, various manufacturers, service providers, and the cottage industry. Furthermore, retail brands are increasingly contributing to national export earnings through international physical stores and cross-border e-commerce.
High Compliance Burden
Despite being among the first to integrate with the FBR-POS system and contributing a significant 25–30% of their turnover in taxes, compliant Tier-1 retailers are now reportedly struggling under the weight of a confluence of challenges. These include high tax rates, escalating procedural complexities, severe punitive enforcement actions, and, critically, the persistent, unresolved technical problems within the FBR-POS system itself.
Persistent FBR-POS System Deficiencies
Recent regulatory changes implemented this year, such as SRO 69(I)/2025, SRO 55(I)/2025, and the Tax Laws (Amendment) Ordinance 2025, have reportedly increased compliance burdens without addressing the fundamental shortcomings of the FBR-POS system. CAP highlighted several critical technical issues, including disconnections caused by POS profile expiry that render invoices unverifiable, incorrect system flags showing integrated outlets as ‘disconnected’ despite active syncing, and inadequate technical support capacity from Pakistan Revenue Automation Limited (PRAL) to resolve these problems promptly.
Aggressive Enforcement Concerns
Adding to the technical frustrations is what CAP describes as an increasingly punitive enforcement approach. The association reported instances where compliant retail outlets experiencing system errors have been sealed without prior notification.
Furthermore, many retailers claim they have been pressured to pay hefty penalties, reportedly exceeding Rs500,000 per outlet, to facilitate reopening. While these actions may aim to boost short-term tax collections, CAP argues they severely erode business confidence, damage the reputation of compliant businesses, and ultimately undermine the long-term goals of tax documentation.
Reversal of Incentives
The situation has been further complicated by the withdrawal of crucial incentives. The discontinuation of the 10–15% concessional General Sales Tax (GST) rate previously offered to customers of integrated retailers has made these compliant businesses less competitive compared to the large segment of the market that remains untaxed or undertaxed. According to CAP, this disparity has contributed to network consolidation and business closures within the organized sector. The association asserts that this lack of supportive reform has, in recent years, hindered employment growth, discouraged investment, and even limited export potential.
Call for Policy Dialogue and Partnership
CAP leadership emphasized the need for a course correction. “We fully support strict action against wilful tax evasion, but the current approach is causing heavy collateral damage,” stated Asfandyar Farrukh, Chairperson of CAP. “Law-abiding retailers are being penalised for compliance, while vast sections of the informal market remain untouched. This is not reform it is a rollback in the making.”
CAP is also advocating for its formal inclusion in the tax policymaking processes to ensure that future reforms are grounded in practical on-ground realities. Tariq Mehboob Rana, CAP Patron-in-Chief, added, “Compliant retailers who invested in technology and compliance should be recognized as partners in reform. CAP and its members wholeheartedly support broadening of the retail tax base – but it must be fair, functional, and future-focused.”
Both leaders warned that unless these critical issues are addressed urgently, the progress made over recent years towards expanding the documented sector in Pakistan risks being reversed.
