CAP warns Third Schedule expansion will overtax consumers

KARACHI: The Chainstore Association of Pakistan (CAP) has expressed serious concern over the proposed inclusion of non-FMCG items, including everyday footwear, school backpacks, bags, wallets and other PCT 42.02 goods, in the Third Schedule of the Sales Tax Act, 1990, warning that the measure will raise prices by taxing consumers on notional retail prices instead of actual transaction values.

CAP, representing tax-compliant Tier-1 retailers, has consistently supported formalisation and broadening of the tax base. However, Third Schedule treatment for price-variable, retailer-led categories will overtax consumers and place pressure on documented retailers and manufacturers.

Public reports estimate that the proposed expansion through the Finance Bill 2026 will generate between Rs 50 billion and Rs 91 billion, indicating the scale of cost that is likely to be reflected in higher prices for end customers, while informal operators selling undocumented or smuggled goods will gain a price advantage.

CAP warned that charging tax on the original retail price can turn 18 percent sales tax into a much higher effective tax burden for consumers.

Retail brands often apply end-of-season and other discounts on a significant share of products; for a product sold at a 30 percent discount from its original price, this can result in an effective GST rate of approximately 26 percent instead of 18 percent.

The association has urged the Government to limit Third Schedule treatment to branded, retail-packed and standardised goods only, where the manufacturer or importer fixes a stable retail price and goods are sold through third-party retail channels. It has also urged the Ministry of Finance, Tax Policy Office and FBR to retain actual POS transaction-value taxation for FBR POS-integrated Tier-1 retailers.

Copyright Business Recorder, 2026