The government should overhaul the current retail taxation structure in the upcoming Finance Bill 2025-26, highlighting the urgent need for fairer policies to support compliant businesses and expand the tax base.
In a request to the government, the official representative body for over 150 Tier-1 retail chains called for inclusive policy-making through structured consultation with the private sector. It stressed that the upcoming budget presents a critical opportunity to resolve long-standing disparities and bring undocumented retailers into the tax net without penalizing compliant players. CAP acknowledged the Finance Minister’s leadership and reiterated its confidence in the government’s commitment to reviving the economy. The association underscored the significant contributions of integrated retailers to employment, commerce, tax revenues, and export value chains, despite representing only a fraction of the retail and wholesale trade landscape.
At present, POS-integrated retailers contribute approximately 25-30% of their turnover in taxes under various heads. Meanwhile, the vast majority of the retail sector remains either under-taxed or entirely undocumented. CAP warned that this growing imbalance has placed an unsustainable burden on documented businesses, many of whom have been forced to downsize or shut down in recent years.
CAP Chairman Asfandyar Farrukh noted that strict enforcement actions and unresolved technical issues in the FBR-POS system have further disrupted operations for compliant retailers. The withdrawal of GST concessions for documented consumers last year, coupled with the failure of the Tajir Dost Scheme due to a lack of consultation and planning, have only worsened the situation. “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.
To drive formalization and promote a cashless economy, 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 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, encourage documentation, and accelerate tax collection.
The association also recommended a fixed quarterly advance income tax regime for small retailers, payable via mobile wallets and adjustable against annual income tax returns. Predictable rates for 3-5 years, coupled with incentives such as government service privileges or cashback offers, would increase voluntary compliance and build trust.
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.
Despite their large contributions, organized retailers remain restricted to just 10% of Pakistan’s retail sector, compared to 15-20% in comparable regional economies. CAP warned that unchecked informal competition, coupled with rising compliance costs, continues to hamper sector growth.