LAHORE: The Chainstore Association of Pakistan (CAP) has voiced serious concerns about the proposed expansion of the Third Schedule of the Sales Tax Act, 1990, warning that the move could significantly increase consumer prices and exacerbate inflationary pressures.
Under the Finance Bill 2026, the government has proposed bringing several non-fast-moving consumer goods (non-FMCG) items, including everyday footwear, school backpacks, bags, wallets and other products falling under PCT 42.02, under the Third Schedule regime.
CAP, which represents tax-compliant Tier-1 retailers, said it supports formalisation and the broadening of the tax base but opposed applying Third Schedule treatment to categories where prices are determined by retailers and frequently change due to promotions and discounts.
It is estimated that the proposed measure could generate between Rs50 billion and Rs91 billion in additional tax revenue. However, CAP warned that this amount would largely be passed on to consumers as higher prices, while undocumented and smuggled products would gain a competitive advantage.
The association said the proposed system would levy sales tax on the original retail price rather than the actual transaction value paid by consumers. As a result, products sold at discounted prices could effectively face a much higher tax burden. For example, a product sold at a 30 per cent discount could attract an effective General Sales Tax (GST) rate of around 26 per cent instead of the standard 18 per cent.
“The issue is not whether tax should be collected. The issue is whether tax should be collected on the actual price paid by the consumer or on a notional price the consumer may never pay”, said CAP Patron-in-Chief Tariq Mehboob. He warned that taxing footwear, backpacks and other price-sensitive goods on assumed prices would reduce affordability and contribute to inflation.
Mehboob noted that conventional Third Schedule products are generally standardised goods with stable retail prices fixed by manufacturers or importers. In contrast, footwear, bags, luggage and leather products derive much of their value through design, branding, marketing and retail merchandising, with final prices often determined by retailers rather than manufacturers.
CAP said this could create cash-flow pressures, compliance burdens and reconciliation challenges for manufacturers and retailers who may be required to pay taxes on notional or highest declared prices.
“Formal retailers are already integrated with FBR’s POS systems, and transaction-level data is available to tax authorities”, said CAP Chairman Asfandyar Farrukh. “There is no documentation value in taxing integrated Tier-1 retailers on assumed prices instead of actual POS transaction values”. He warned that the proposed changes could distort pricing, suppress demand and discourage investment in local manufacturing, sourcing, stores, logistics and employment.
The association has urged the government, the Ministry of Finance and the FBR to restrict Third Schedule treatment to branded and standardised products with stable manufacturer-set prices and to continue taxing POS-integrated Tier-1 retailers on actual transaction values rather than notional prices.
