LAHORE: The proposed Third Schedule’s expansion has been termed as a tool to fix gaps in GST collection and capture revenue from undocumented food sector sales.
In the pre-budget advocacy for the Finance Bill 2026-27, a critical shift in tax strategy has been proposed to enhance much-need revenue not by raising rates, but by fixing a structurally broken collection system. While sales tax accounted for 65.5 per cent of total indirect tax collection in FY 2024-25, the system currently collapses at the retail tier, the most crucial missing link in tax net. With approximately 92 per cent of the country’s 3.7 million retailers remaining undocumented, the traditional multi-stage VAT mode suffers from massive leakages through undocumented discounts and off-invoice payments.
According to the Policy Research Institute of Market Economy, the solution lies in the Third Schedule of the Sales Tax Act 1990, an alternative architecture that shifts the tax base to the maximum retail price (MRP) printed on the product pack. This mechanism is already a proven success, covering over Rs2.5 trillion in annual FMCG sales for items like beverages, tea and biscuits.
In FY 2024-25 alone, this “upstream collection” method generated over Rs340 billion from just four key sectors: sugar, cement, beverages, and tea. By discharging the full tax at the manufacturing stage, the FBR bypasses the undocumented retail sector entirely, ensuring that the tax base is transparent, enforceable and resistant to leakage.
The proposed data-driven roadmap for the 2026-27 budget suggests expanding this schedule to include essential high-volume food categories, according to Maryam Ayub, research economist at PRIME Institute. The main peg for this expansion include cooking oil, milk and dairy products, flour, noodles, infant formula and frozen foods. This move is strictly revenue-neutral for the consumer, the GST rate remains at the standard 18 per cent, but the change in mechanism ensures that the government actually receives the revenue it is owed.
Beyond mere collection, this strategy aims to “level the playing field”. Currently, documented businesses face unfair competition from non-compliant units that evade taxes at the retail level. By making the printed MRP a “legally enforceable price ceiling” and a visible tax base, the Third Schedule eliminates the information asymmetry between the taxpayer and the regulator.
Maryam Ayub concludes that enforcing this smarter as well as immediate collection mechanism on essential food items will provide the exchequer with predictable cash flow while protecting consumers from arbitrary overcharging in the absence of printed labelling of price, all without the need to levy a single new tax.
