ISLAMABAD: Tax experts, economists, and business leaders called for major reforms in Pakistan’s sales tax regime in the upcoming federal budget 2026-27, urging the government to expand the Third Schedule of the Sales Tax Act to ensure a level playing field across all sectors of the economy.
The recommendations were presented during the “Islamabad Policy Exchange” hosted by the Policy Research Institute of Market Economy (PRIME), where stakeholders discussed reforms in Pakistan’s General Sales Tax (GST) framework.
The roundtable, titled “GST Framework: Levelling the Playing Field,” brought together economists, policymakers, industry representatives, and tax experts to evaluate GST restructuring, expansion of the Third Schedule, and measures for formalizing the retail economy ahead of the Federal Budget 2026-27.
During the session, Maryam Ayub, Research Economist at PRIME, presented a working paper highlighting structural weaknesses in Pakistan’s current GST system.
According to the paper, sales tax accounted for 65.5 percent of total tax revenues in 2024-25, while nearly 92 percent of Pakistan’s 3.7 million retailers remain undocumented.
The paper noted that an additional 6.5 percent indirect levy on unregistered retailers places an unfair burden on the manufacturing sector and discourages formal business activity.
To address these distortions, the study proposed expanding the Third Schedule to cover essential consumer goods and implementing a uniform 18 percent sales tax at the manufacturing stage based on printed retail prices.
Dr. Ali Salman, Chief Executive Officer of PRIME, pointed to a tax shortfall of Rs684 billion during the first 10 months of the fiscal year. He said the failure of the Federal Board of Revenue (FBR) to bring informal sectors into the tax net has increased pressure on compliant businesses and created an anti-investment environment.
He also proposed introducing a low and harmonized flat sales tax rate, suggesting an 8 percent GST model to improve revenue collection through greater standardization and compliance.
Sardar Tahir Mehmood, President of the Islamabad Chamber of Commerce & Industry (ICCI), stressed the need for policies that promote economic expansion rather than burden businesses with excessive indirect taxation.
He said many retailers avoid joining the documented economy because the current tax structure penalizes formal businesses. Mehmood added that expanding the Third Schedule could improve consumer protection, transparency, and tax collection while reducing unnecessary harassment by tax authorities.
Usman Shaukat, President of the Rawalpindi Chamber of Commerce & Industry (RCCI), stated that rising energy prices, taxes, and high interest rates have made Pakistani industries less competitive in the region. He urged policymakers to focus on creating a fair business environment instead of offering selective tax relief measures.
Sheikh Waqar Ahmad, Head of Corporate Affairs & Sustainability at Nestlé Pakistan, said operating a formal business model has become increasingly difficult over the past two years. He described the Third Schedule as a practical way forward for improving documentation and ensuring fair taxation.
Meanwhile, Dr. Nasir Iqbal, Senior Economist at the Pakistan Institute of Development Economics (PIDE), emphasized the importance of introducing self-enforcement mechanisms and incentives for taxpayers.
He stated that Pakistan must simplify business registration processes to achieve sustainable economic growth and eventually move toward a trillion-dollar economy.
In his concluding remarks, Mukarram Jah Ansari, Member of the Federal Board of Revenue (FBR), supported the broader reform agenda discussed during the roundtable. He acknowledged that better incentives and the use of technology could significantly improve tax collection without placing additional burdens on compliant sectors of the economy.
