ISLAMABAD: Pakistan’s organized retail sector, represented by the Chainstore Association of Pakistan (CAP), has issued a strong appeal to the government to overhaul the existing retail taxation structure in the upcoming Finance Bill 2025–26. The association emphasized the urgent need for fairer policies that support compliant businesses and actively expand the nation’s narrow tax base.
In a detailed appeal addressed to Federal Minister for Finance Muhammad Aurangzeb, CAP, which represents over 150 Tier-1 retail chains, called for inclusive policy-making through structured consultation with the private sector. CAP stressed that the upcoming budget presents a critical opportunity to resolve long-standing disparities within the retail landscape and to bring the vast undocumented retail sector into the tax net without unduly penalizing businesses already compliant.
CAP acknowledged the Finance Minister’s leadership and reiterated its confidence in the government’s commitment to economic revival. The association highlighted the significant contributions of integrated retailers to employment generation, commerce, tax revenues, and export value chains, despite their relatively small footprint within the overall retail and wholesale trade landscape.
Unsustainable burden on compliant businesses
At present, POS-integrated retailers contribute approximately 25–30% of their turnover in taxes under various heads. In stark contrast, the majority of the retail sector remains either undertaxed or entirely undocumented. CAP warned that this growing imbalance has placed an unsustainable burden on documented businesses, leading many to downsize or even shut down their operations in recent years.
CAP Chairman Asfandyar Farrukh noted that strict enforcement actions by the FBR and persistent technical issues within the FBR-POS system have further disrupted operations for compliant retailers. He pointed to the withdrawal of GST concessions for documented consumers last year, coupled with the failure of the “Tajir Dost Scheme” due to a lack of proper consultation and planning, as factors that have only worsened the situation for formal businesses. “To prevent another setback, the Finance Bill 2025–26 must introduce bold, technology-led solutions that broaden the tax base without penalizing formal businesses,” Farrukh emphasized.
Proposals for formalization and cashless economy
To drive formalization and promote a cashless economy, CAP has put forward several key proposals:
Fixed GST Rates for Digital Payments: CAP proposed fixed GST rates on retail sales made via digital payments: 1–2% for consumer goods and 3–4% for textile and leather items. These lower, fixed rates should be extended to all tiers of retailers, including small and mid-sized enterprises, along with simplified compliance measures and alignment with provincial digital payment incentives. CAP maintains that such a framework will reduce costs for businesses, encourage documentation, and accelerate tax collection.
Fixed Quarterly Advance Income Tax for Small Retailers: The association recommended a fixed quarterly advance income tax regime for small retailers, payable conveniently via mobile wallets and adjustable against their annual income tax returns. Predictable rates for 3–5 years, coupled with incentives such as government service privileges or cash back offers, would significantly increase voluntary compliance and build much-needed trust between taxpayers and the FBR.
To reignite consumer engagement in tax compliance, CAP urged the government to revive the FBR-POS Prize Scheme, which has been suspended since November 2022. Additionally, the association demanded transparency in the use of the over Rs1.2 billion collected through the POS Re1 per invoice fee under the IRS Common Pool Fund, seeking clarity on its utilization.
Despite their substantial contributions, organized retailers remain restricted to just 10% of Pakistan’s retail sector, a stark contrast to 15–20% in comparable regional economies. CAP warned that unchecked informal competition, coupled with rising compliance costs, continues to severely hamper the sector’s growth potential.
The association reiterated its readiness to collaborate with relevant government institutions, including the Ministry of Commerce, FBR, State Bank of Pakistan (SBP), Competition Commission of Pakistan (CCP), and others, to support the development of a fair, digital, and growth-oriented retail tax ecosystem. CAP has formally requested a meeting with the Finance Minister to present its detailed proposals and assist in shaping meaningful reforms in the Budget 2025–26.
