Retail sector: CAP voices concerns over lack of ‘meaningful’ tax reforms

LAHORE: The Chainstore Association of Pakistan (CAP) has raised significant concerns over the lack of meaningful tax reforms for the retail sector in the proposed Finance Bill 2025–26.

The CAP has also warned that targeting domestic e-commerce could inadvertently harm the formal retail sector and jeopardize the growth of Pakistan’s digital economy if not revised.

The CAP acknowledged the government’s efforts to broaden the tax base and formalize the economy. However, the association argues that inconsistent and short-sighted policies have placed disproportionate burdens on tax-compliant retailers integrated with the Federal Board of Revenue’s Point of Sale (FBR-POS) system. The absence of a clear, long-term taxation roadmap, developed in consultation with stakeholders, has further deepened uncertainty within the sector.

“This year, the retail ecosystem anticipated a strategic, long-term approach in the Finance Bill,” said CAP Chairman Asfandyar Farrukh.

“Instead, we see a continuation of past practices, with our proposals to foster formal retail growth and encourage broader documentation largely overlooked.”

Organized retail currently accounts for only 10% of Pakistan’s retail and wholesale trade, significantly lower than the 15–20% share observed in comparable economies. Informal competition, increasing compliance burdens, and uneven enforcement continue to hinder growth, investment, and job creation in the formal retail sector.

CAP Patron-in-Chief Tariq Mehboob highlighted the detrimental impact of last year’s decision to eliminate the GST concession for customers of tax-compliant retailers, which has further tilted the competitive landscape in favor of informal players.

“Schemes like Tajir Dost failed due to inadequate planning and lack of stakeholder engagement,” Mehboob stated. “There is still an opportunity to revise the Finance Bill before its finalization. Without prompt action, we risk losing another year without meaningful reform.”

To encourage digital payments and economic documentation, the CAP has proposed reduced GST rates for consumers who transact digitally with retailers of any size. These rates, coupled with simplified compliance measures and built on the success of provincial incentives, would lower costs, promote formalization, and reduce reliance on cash transactions.

Additionally, the CAP has recommended a fixed quarterly advance income tax regime for small retailers, payable through branchless banking and adjustable against annual filings. The association also advocates for a stable, three-to-five-year tax framework, complemented by incentives such as cashback programmes and service benefits at NADRA and passport offices, to build trust and encourage small and medium-sized enterprises (SMEs) to register.

Pakistan’s e-commerce sector has experienced remarkable growth, expanding by over 35% annually and empowering more than 100,000 micro and small sellers while generating jobs in technology and logistics. According to the State Bank of Pakistan, the sector facilitated over PKR 538 billion in digital payments in 2024. The CAP supports positive measures in the Finance Bill, such as the 5% digital presence levy on imported goods sold through foreign platforms like Temu and the introduction of e-commerce transaction reporting to enhance documentation.

However, the CAP has expressed concern over several proposed tax compliance measures that could undermine these gains. Key concerns include blanket sales tax withholding on already documented businesses without input adjustment, mandatory sales tax registration for micro-sellers—particularly impacting youth and women entrepreneurs—and complex, multi-rate income tax withholding for platforms, payment providers, and courier services. These policies risk creating operational bottlenecks, complicating payment recovery, and increasing compliance costs across the e-commerce value chain.

The CAP has called on the Ministry of Finance, the Federal Board of Revenue, and the Ministry of Commerce to suspend the implementation of these measures and engage in urgent consultations with stakeholders, including online sellers, platforms, and service providers.

The association has put forward several recommendations to address these issues: limiting the 2% sales tax withholding to non-Active Taxpayer List (ATL) sellers, accepting income tax registration as sufficient for small, home-based online sellers, implementing a simplified single-rate income tax withholding of 0.25%, restructuring penalties to encourage rather than punish compliance, rationalizing provincial taxes on essential digital services, and providing a transition period of at least two to three months for e-commerce businesses to adapt.

Copyright Business Recorder, 2025