Retailers seek revisions to e-commerce, retail tax measures in Finance Bill 2025-26

LAHORE: The Chainstore Association of Pakistan (CAP) has expressed serious concern over the lack of meaningful retail tax reforms in the Finance Bill 2025-26, warning that several compliance-heavy proposals targeting domestic e-commerce could inadvertently damage the formal retail sector and derail momentum in Pakistan’s emerging digital economy.

While endorsing the government’s objectives of broadening the tax base and formalising the economy, CAP maintains that inconsistent and short-term policymaking has unfairly burdened tax-compliant retailers already integrated with the Federal Board of Revenue’s Point of Sale (POS) system. It also highlighted the absence of a clear, three-to-five-year taxation roadmap developed in consultation with stakeholders, which continues to fuel uncertainty in the sector.

“This year, the retail ecosystem hoped for a strategic, long-term approach in the Finance Bill,” said CAP Chairperson Asfandyar Farrukh. “Instead, we see a repetition of past practices. Our proposals to support formal retail growth and encourage broader documentation have been ignored.”

Despite its growing contributions, organised retail accounts for only 10 per cent of Pakistan’s retail and wholesale trade -- considerably below the 15-20 per cent share seen in comparable economies. CAP argues that informal competition, rising compliance costs and unbalanced enforcement are suppressing the sector’s growth, investment and employment potential.

CAP Patron-in-Chief Tariq Mehboob noted that last year’s withdrawal of the GST concession for customers of tax-compliant retailers further tilted the playing field in favour of the informal sector. He added that government initiatives such as the Tajir Dost scheme had failed due to poor planning and a lack of consultation with key stakeholders. There is still time, he said, to revisit and revise the Finance Bill before it is finalised; without such action, the country risks missing yet another year of genuine reform.

To encourage digital payments and strengthen documentation, CAP has proposed a reduced GST rate for consumers transacting digitally with any retailer, regardless of business size. It argues that these rates, supported by simplified compliance mechanisms and built on successful provincial-level incentives, would reduce costs, foster formalisation and help shift the economy away from cash dependency.

In parallel, CAP has suggested introducing a fixed quarterly advance income tax regime for small retailers. This would be payable via branchless banking channels and adjustable against annual tax filings. The association believes that a stable three-to-five-year tax framework -- combined with positive incentives such as cashback rewards and fast-track services at NADRA offices and passport centres -- would help build trust and encourage SME registration across the country.

Citing data from the State Bank of Pakistan, CAP noted that the country’s e-commerce sector is growing by more than 35 per cent annually, empowering over 100,000 micro and small sellers, generating jobs in technology and logistics, and facilitating over Rs538 billion in digital payments in 2024 alone.

The association welcomed progressive steps such as the introduction of a 5.0 per cent digital presence levy on imported goods sold via foreign platforms like Temu, as well as the implementation of transaction-level reporting to improve documentation within the sector.

However, CAP cautioned that other tax compliance measures proposed in the Finance Bill risk reversing these gains. It raised particular concern over the blanket imposition of sales tax withholding on already documented businesses -- without allowing for input tax adjustments -- as well as the mandatory sales tax registration for micro-sellers, which could disproportionately impact youth-led and women-led entrepreneurial ventures. CAP also criticised the proposed introduction of a complex, multi-rate income tax withholding structure affecting digital platforms, payment service providers and courier companies, arguing that such policies would create operational bottlenecks, complicate payment recovery and raise compliance costs throughout the value chain.

In its statement, CAP urged the Ministry of Finance, the Federal Board of Revenue, and the Ministry of Commerce to pause the implementation of these measures and immediately initiate consultations with a broad range of stakeholders, particularly online sellers, digital platforms, and service providers. Among its key recommendations, CAP suggested limiting the 2.0 per cent sales tax withholding to sellers not appearing on the Active Taxpayers List (ATL); recognising income tax registration as sufficient compliance for small, home-based online sellers; adopting a simplified, single-rate income tax withholding structure at 0.25 per cent; and restructuring the penalty regime in a way that promotes, rather than punishes, compliance. It further recommended rationalising provincial-level taxes on essential digital services and allowing a transition period of at least two to three months to enable e-commerce businesses to adjust to the proposed regulations.