As the federal government introduces another simplified tax system for retailers, skepticism is growing about its implementation.
LAHORE:
The federal government has decided to introduce a flat or simplified tax system for small traders and traders in the 2026-27 budget, with the aim of bringing more businesses into the tax net and generating additional revenue. However, previous experiences with similar schemes and existing trends in tax collection have raised doubts about whether the initiative will achieve its ambitious objectives.
According to budget documents, the government has introduced a simplified tax regime for traders with an annual turnover of up to Rs 200 million. The plan aims to encourage small businesses to register in the tax system, and officials expect around 50 billion rupees in additional revenue.
Former Federal Board of Revenue (FBR) member Mustafa Ashraf opined that the move was a positive step but highlighted concerns over combining documentation efforts with a flat tax system. “The government claims to have around 4 million taxpayers, and if 1 million taxpayers contribute Rs 25,000 each, it could generate Rs 25,000 crore. However, similar business tax schemes introduced in the past have failed to produce significant revenue,” Ashraf said.
For fiscal year 2026-27, the FBR has been assigned a tax collection target of Rs 15.26 trillion, and the retail sector has been identified as a major area to increase revenue. Economic experts feel that despite being a large part of Pakistan’s economy, retail trade contributes comparatively less to tax collection.
Pakistan is estimated to have between 3.5 and 4 million traders, but many remain outside the formal tax system. Successive governments have introduced several initiatives to document traders, including flat tax schemes, but most have fallen short of expectations.
A similar flat tax scheme was introduced in 2014 during the Pakistan Muslim League-Nawaz (PML-N) government, followed by other programs such as the Trader Friendly Scheme. Despite ambitious registration targets, only a limited number of traders became part of the tax system, creating a gap between expected and actual revenue collection.
Tax figures from Lahore markets also show differences in business activity and tax payment. Reports indicate that Multan Road Market contributed around Rs 10 billion in taxes, while Wapda Town Market paid around Rs 1.63 billion. Other markets including Urdu Bazaar Lahore contributed around Rs 338.7 crore while DHA Y-Block Market reported around Rs 248 crore.
Meanwhile, some markets reported much lower tax contributions, including Naulakha Bazaar with around Rs 14.2 million and Sarafa Bazaar with about Rs 2.35 million. Experts emphasize that these figures reflect the gap between actual business activity and tax payments in various markets.
Trader organizations argue that rising electricity costs, inflation and rising business expenses have already created difficulties for traders. The government, however, believes that bringing retailers into the formal tax system will strengthen the economy and improve revenue collection.
Former Lahore House Speaker Mian Muhammad Ali believed that the FBR’s new fixed tax system was an important move. “The tax amount of Rs 25,000 is low and would provide traders with a tax certificate and protection from repeated audits and queries. Small retailers would effectively pay around Rs 2,000 a month under the scheme,” Ali said.
Ali suggested that the government should keep the tax rate fixed for five years, arguing that since the system was approved by Parliament, any major changes should also require parliamentary approval.
Economic experts emphasize that the plan’s success will ultimately depend on the government’s ability to bring millions of merchants into the tax net and meet its revenue targets, rather than repeating the shortcomings of previous initiatives.
