KARACHI/LAHORE: The government’s recently announced fixed tax scheme for small retailers has drawn a mixed response from traders and economists, with supporters calling it a step towards widening the tax base and critics questioning its design and enforceability.
Under the policy, shopkeepers with annual retail sales of Rs200 million ($719,000) or less will be subject to a 1.0 per cent turnover tax. The government has framed the measure as part of efforts to formalise the retail sector and improve tax compliance.
Macroeconomist Ammar Habib Khan said the scheme’s effectiveness could be limited, arguing that it lacks strong enforcement mechanisms. He said the absence of penalties for non-compliance could weaken incentives for traders to register or file returns.
However, some industry representatives described the framework as a practical step towards simplification.
Tariq Mehboob, patron-in-chief of the Chainstores Association of Pakistan (CAP), said the scheme introduced a more workable structure, particularly through a simplified filing system and a minimum monthly payment requirement of Rs25,000, which he said would prevent “nil” or negligible filings.
He said the model could improve revenue collection based on declared turnover but raised concerns over policy continuity, noting that uncertainty over whether the scheme would last one, two or five years could discourage participation.
Mehboob also said the 1.0 per cent rate could be burdensome for FMCG (fast moving consumer goods) and Third Schedule products, where margins are only 2-2.5 per cent, or items like flour, pulses, and rice which are price-controlled by the government (DC rates), the commissions are very minimal. For such items, he said, a lower rate of 0.5 per cent may have been more broadly acceptable.
He added that the scheme does not clearly address interaction with the sales tax regime, which could create compliance complexity for traders crossing registration thresholds.
Despite these concerns, Mehboob said the initiative could still succeed if implemented consistently, adding that traders should consider participating while remaining open to resolving procedural issues over time.
Chairperson of CAP Asfand Yar Farrukh argued that the scheme should be extended to small e-commerce sellers, saying online and physical retailers within the same turnover bracket should be treated equally. He said bringing e-commerce businesses into the tax net through a simple framework would encourage documentation and formalisation. Farrukh noted that online sellers already face substantial withholding taxes on digital and cash-on-delivery transactions, resulting in a higher effective tax burden than many traditional retailers. He added that policymakers should avoid creating multiple tax regimes and instead work towards a simpler and more uniform system for all businesses.
Yousuf Farooq, chief executive of Chase Securities, said bringing small traders into the tax net would broaden the base.
In his post on X, Coordinator to Minister of IT Syed Hamid Falki said, “For years, salaried individuals, industries and the formal sector have demanded a broader tax base. An estimated 3.5 million plus small retailers will now have the opportunity to join a simple, easy and voluntary tax system. An important step towards a fairer and more inclusive economy.”
Traders’ associations largely welcomed the policy. Muhammad Minhaj Gulfam, president of the Karachi Mobile and Electronics Dealers Association, said the fixed tax system would simplify compliance and improve business confidence.
All Pakistan Anjuman-e-Tajran president Ajmal Baloch also supported the scheme, describing it as simpler than previous systems and easier for small businesses to navigate. He said traders had long sought simplified tax filing procedures and welcomed the introduction of a streamlined format.
Baloch said the scheme appeared to reduce direct interaction with tax officials, with compliance linked to visible shop-level documentation and adjustments for withholding tax already paid through utility bills.
He cautioned, however, that any changes to the scheme could trigger protests, and called on the government to maintain policy stability.
Baloch also raised allegations of irregularities in customs warehouse operations, including losses linked to cotton consignments.
Introducing a scheme that is a win-win for both the government and traders remains a complex policy challenge. In 2022, when then finance minister Miftah Ismail introduced fixed sales tax on commercial power bills, Maryam Nawaz, in her capacity as vice president of the PML-N, said in a social media post that the trader community was perturbed over heavy taxation on electricity bills and urged Ismail to address their concerns.
The episode highlighted the political sensitivity of retail taxation in Pakistan, where traders represent a large voting bloc and have previously demonstrated the ability to disrupt markets through coordinated shutdowns.
Miftah Ismail did not respond to The News’ request for comments.
